THE TAX PROTESTER FAQ

Created by Daniel B. Evans

Copyright © 1998-2010. All rights reserved. Not legal advice.

First published: 11/28/1998; Last updated: 2/27/2011

Like most things on the Internet, this is a work in progress. Not all citations and quotations have been confirmed, and there are additional cases and arguments that may be added in the future.

Table of Contents

The Tax Protester FAQ

Introduction

What is the purpose of this FAQ?

The purpose of this FAQ is to provide concise, authoritative rebuttals to nonsense about the U.S. tax system that is frequently posted on web sites scattered throughout the Internet, by a variety of fanatics, idiots, charlatans, and dupes, frequently referred to by the courts as “tax protesters”.

This “FAQ” is therefore not a collection of frequently asked questions, but a collection of frequently made assertions, together with an explanation of why each assertion is false.

And the assertions addressed in this FAQ are not merely false, but completely ridiculous, requiring not just ignorance of law and history, but a suspension of logic and reason.

In this FAQ, you will read many decisions of judges who refer to the views of tax protesters as “frivolous,” “ridiculous,” “absurd,” “preposterous,” or “gibberish.” If you don’t read a lot of judicial opinions, you may not understand the full weight of what it means when a judge calls an argument “frivolous” or “ridiculous.” Perhaps an analogy will help explain the attitude of judges.

Imagine a group of professional scientists who have met to discuss important issues of physics and chemistry, and then someone comes into their meeting and challenges them to prove that the earth revolves around the sun. At first, they might be unable to believe that the challenger is serious. Eventually, they might be polite enough to explain the observations and calculations which lead inevitably to the conclusion that the earth does indeed revolve around the sun. Suppose the challenger is not convinced, but insists that there is actually no evidence that the earth revolves around the sun, and that all of the calculations of the scientists are deliberately misleading. At that point, they will be jaw-droppingly astounded, and will no longer be polite, but will evict the challenger/lunatic from their meeting because he is wasting their time.

That is the way judges view tax protesters. At first, they try to be civil and treat the claims as seriously as they can. However, after dismissing case after case with the same insane claims, sometimes by the same litigant, judges start pulling out the dictionary to see how many synonyms they can find for “absurd.”

The frustration of judges is well described in the following opinion of the Fifth Circuit Court of Appeals, responding to an appeal raising some of the ridiculous constitutional claims described in this FAQ:

“We are sensitive to the need for the courts to remain open to all who seek in good faith to invoke the protection of law. An appeal that lacks merit is not always--or often--frivolous. However we are not obliged to suffer in silence the filing of baseless, insupportable appeals presenting no colorable claims of error and designed only to delay, obstruct, or incapacitate the operations of the courts or any other governmental authority. Crain’s present appeal is of this sort. It is a hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish. The government should not have been put to the trouble of responding to such spurious arguments, nor this court to the trouble of ’adjudicating’ this meritless appeal.”

Crain v. Commissioner, 737 F.2d 1417, 1418 (5th Cir. 1984).

The court not only ruled against Crain, but imposed a damage award against him (essentially a fine) of $2,000 for bringing a frivolous appeal. Id at 1418.

So, when a judge calls an argument “ridiculous” or “frivolous,” it is absolutely the worst thing the judge could say. It means that the person arguing the case has absolutely no idea of what he is doing, and has completely wasted everyone’s time. It doesn’t mean that the case wasn’t well argued, or that judge simply decided for the other side, it means that there was no other side.. The argument was absolutely, positively, incompetent. The judge is not telling you that you that you were “wrong.” The judge is telling you that you are out of your mind.

This FAQ addresses only assertions that are frivolous, and only questions of law, not politics or economics. It is not the purpose of this FAQ to criticize any opinion, or stifle any debate, about the proper scope or operation of the federal tax system. For example, claims that the federal income tax is unfair, morally equivalent to theft, or bad economic policy are all matters of opinion, not law, and are outside the scope of this FAQ. However, a claim that the federal income tax is unconstitutional, unenforceable, or inapplicable is an assertion of law and is within the scope of this FAQ.

Finally, it should be noted that this FAQ does not include all of the decisions of all the federal courts that have been forced to deal with tax protesters and tax protester arguments, but includes mainly published decisions of the United States Supreme Court and Circuit Courts of Appeal that have most clearly refuted these tax protester claims. District Court and Tax Court decisions have been included to fill some gaps, as well as a few unpublished Circuit Court of Appeals decisions, but hundreds of published decisions of the Tax Court and District Courts have not been included, as well as many published and unpublished decisions of the Courts of Appeals.

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What is a “tax protester”?

The phrase “tax protester” is commonly applied to two different types of people:

This FAQ uses the phrase “tax protester” in the second sense, referring to people who refuse to file returns or pay taxes because of ridiculous and far-fetched arguments against the validity or application of the tax laws. (See the above explanation of the purpose of this FAQ.)

However, many tax protesters have objected to the label of “tax protester.” First, they claim that the IRS has improperly applied the label “illegal tax protester” to them and other citizens who have simply expressed a disagreement with the tax laws. Secondly, they claim that they are not “protesting” the tax laws, but only arguing that the tax laws do not apply to them or their income.

In 2008, the Department of Justice began using the phrase “tax denier” and announced a national “initiative” to address the problems associated with tax protester-like arguments, beliefs, and practices. See “Nathan J. Hochman, Tax Division’s Assistant Attorney General, Announces Creation of the National Tax Defier Initiative,” Rel. 08-275 (4/8/2008). However, the label “tax defier” suffers from the same semantic problem as the label “tax protester,” which is that those persons normally labeled “tax protesters” or “tax defiers” are not protesting the tax laws or defying the tax laws but claiming (in most cases) that the tax laws do not validly apply to them.

For these and other reasons, a better term might be “tax denier” (a phrase that was coined by the author of this FAQ and first suggested in misc.taxes newsgroup posting on 4/23/2001). Just like “Holocaust deniers” attempt to rationalize and justify their refusal to accept an indisputable historical fact (that Nazi Germany deliberately exterminated millions of Jews), “tax deniers” attempt to rationalize and justify their refusal to accept indisputable historical facts (that the Constitution allows Congress to impose a tax on the incomes of citizens and residents of the United States and that Congress has exercised that power). Many (if not most) tax protesters do not “protest” the federal income tax; they simply refuse to believe that it applies to them or that it is constitutional.

Although the phrase “tax denier” may be more accurate, this FAQ will (for the time being) continue to use the more traditional description of “tax protester” to describe tax deniers and the arguments they raise.

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Constitutional Fallacies

The federal income tax is unconstitutional because it is a “direct tax” that must be apportioned among the states in accordance with the census.

False. It is true that there is an apportionment requirement in the Constitution for “direct taxes,” but the 16th Amendment clearly eliminates the apportionment requirement for all taxes on incomes.

Before the adoption of the 16th Amendment, the constitutionality of an income tax was determined under Article I, Section 9, Clause 4 of the Constitution, which states that:

“No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”

The reference to the “Census or Enumeration” was a reference to Article I, Section 2, of the Constitution, which directs that:

“Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.”

(“All other Persons” meant slaves.)

Whether or not an income tax should have been considered to be a “direct tax” that must be apportioned will be discussed below, but the 16th Amendment to the Constitution, ratified in 1913, removed all doubt about apportionment because it clearly states that:

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

And so, following the ratification of the 16th Amendment, Congress enacted an unapportioned income tax, and the constitutionality of that tax was challenged, but the Supreme Court held unanimously that the income tax was constitutional because “in express terms the Amendment provides that income taxes, from whatever source the income may be derived, shall not be subject to the regulation of apportionment.” Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).

The arguments that tax protesters make about the validity and meaning of the 16th Amendment will be dealt with in other sections of this FAQ. (See “Related Topics,” below.)

But because tax protesters continue to insist that a tax on incomes was a “direct tax” both before the ratification of the 16th Amendment and even afterwards, a brief history of the Supreme Court’s interpretation of “direct tax” is appropriate.

Meaning of “Direct Tax” Before the 16th Amendment

Exactly what the framers of the Constitution meant by “direct Taxes” has been subject of much debate.

The phrase “direct taxation” appears many times in James Madison’s Notes of Debates in the Federal Convention of 1787, because the convention had agreed that representation in Congress and “direct taxes” should both be apportioned among the states in the same way, according to population, but with slaves being counted as three-fifths of a person. (By contrast, the power of Congress to impose duties, imposts, and excises received very little discussion, except to agree that those kinds of taxes should be “uniform throughout the United States.”) And yet, on August 20, 1787, on the same day that the convention approved the final version of the Constitution, Madison reports that “Mr King asked what was the precise meaning of direct taxation. No one answerd.”

To understand the context of the debates about “direct taxes” in the constitutional convention, it is important to note that, under Article VII of the Articles of Confederation that were in force before the Constitution was ratified, the states were required to supply the funds that Congress required “in proportion to the value of all land within each State,” and yet each state had only one vote, so the larger states were required to contribute more to the defense of the United States and yet could be outvoted by smaller states on how the contributions would be spent.

An early draft of the new Constitution, proposed to the convention by William Paterson of New Jersey, provided for the apportionment of “requisitions” among the states using the same language eventually adopted for the apportionment of “direct Taxes.” This suggests that “direct Taxes” were considered to be substitutes for, or perhaps equivalent to, the requisitions previously exacted by Congress from the states.

Taking the debates reported in Madison’s Notes as a whole, it appears that the required apportionment of “direct Taxes” was intended to address the concerns of the relatively wealthy southern states of the new United States, with large plantations owned by relatively few people and larger number of slaves than the northern states, that taxes imposed by a certain amount per person (i.e., capitations and poll taxes) should be adjusted for slaves, and that taxes on land should be allocated among the states in proportionate to their populations, not their values.

There are several statements in the Federalist Papers in which “direct taxes” are equated with taxes on wealth.

For example, in Federalist #12, Alexander Hamilton (who had been a delegate to the constitutional convention) wrote:

“In so opulent a nation as that of Britain, where direct taxes from superior wealth must be much more tolerable, and, from the vigor of the government, much more practicable, than in America, far the greatest part of the national revenue is derived from taxes of the indirect kind, from imposts, and from excises. Duties on imported articles form a large branch of this latter description.”

(Emphasis added.)

And, in Federalist #21, Alexander Hamiton wrote:

“Impositions of this kind [taxes on articles of consumption] usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment.”

(Emphasis added.)

And, in Federalist #54, Hamilton or Madison wrote that the apportionment of taxes “has reference to the proportion of wealth,” and is applied “to the relative wealth and contributions of the States.”

Each of these statements is consistent in their understanding that a “direct taxes” were (a) capitations and poll taxes, and (b) taxes on wealth (primarily the value of land).

Only nine years after the constitutional convention, the Supreme Court affirmed this understanding in Hylton v. United States, 3 U.S. 171 (1796). Three of the four justices who decided the case wrote opinions (separate opinions was the usual practice of that day), and all four justices agreed that “direct tax” did not apply to an annual tax on the private ownership of carriages.

Justice Chase wrote that:

“I am inclined to think, but of this I do not give a judicial opinion, that the direct taxes contemplated by the Constitution, are only two, to wit, a capitation, or poll tax, simply, without regard to property, profession, or any other circumstance; and a tax on LAND. I doubt whether a tax, by a general assessment of personal property, within the United States, is included within the term direct tax.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Chase; emphasis in original).

Justice Paterson (who was a delegate to the constitutional convention and, as discussed above, presented one of the first drafts of the constitution, including a provision for the apportionment of “requisitions”), expressed a similar opinion:

“Whether direct taxes, in the sense of the Constitution, comprehend any other tax than a capitation tax, and tax on land, is a questionable point. ... I never entertained a doubt, that the principal, I will not say, the only, objects, that the framers of the Constitution contemplated as falling within the rule of apportionment, were a capitation tax and a tax on land.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Paterson).

Finally, Justice Iredell (who was not a delegate to the constitutional convention, but was a delegate to the North Carolina convention that debated ratification of the Constitution) expressed his opinion that:

“Perhaps a direct tax in the sense of the Constitution, can mean nothing but a tax on something inseparably annexed to the soil: Something capable of apportionment under all such circumstances.

A land or a poll tax may be considered of this description.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Iredell).

Justice Wilson, who was also a member of the constitutional convention, wrote a brief opinion joining in the decision, but did not explain his decision beyond saying that he “had before expressed a judicial opinion on the subject, in the Circuit Court of Virginia” in which he upheld the constitutionality of the tax. (No copy of his opinion in the Circuit Court of Virginia survives.)

The question of whether a tax on income was a “direct tax” within the meaning of the Constitution, or a “duty,” “impost,” or “excise,” did not arise until the Civil War began, when the Union enacted additional taxes, some on incomes, in order to pay for the war.

The first of these new taxes to reach the Supreme Court was a tax on the gross amounts of premiums received by insurance companies. Writing for a unanimous court, Justice Swayne quoted from the opinions of Chase and Paterson in Hylton case, as well as other authorities on the meaning of “duties,” “imposts,” and “excises,” and concluded that:

“If a tax upon carriages, kept for his own use by the owner, is not a direct tax, we can see no ground upon which a tax upon the business of an insurance company can be held to belong to that class of revenue charges.”

Pacific Ins. Co. v. Soule, 74 U.S. 433 (1868) (holding that a tax on insurance company income was a “duty or excise”).

In 1869, reviewing the acts of Congress that had imposed “direct taxes” since the Hylton decision, as well as the opinions in the Hylton case itself, the Supreme Court confirmed that:

“This review [of the history of Congressional impositions of “direct taxes”] shows that personal property, contracts, occupations, and the like, have never been regarded by Congress as proper subjects of direct tax.”

Veazie Bank v. Fenno, 75 U.S. 533, 543 (1869).

And:

“[I]t may further it may further be taken as established upon the testimony of Paterson, that the words direct taxes, as used in the Constitution, comprehended only capitation taxes, and taxes on land, and perhaps taxes on personal property by general valuation and assessment of the various descriptions possessed with the several States.”

Veazie Bank v. Fenno, 75 U.S. 533, 546 (1869).

Finally, in a challenge to a general income tax imposed on individuals, the Supreme Court followed the opinions from the Hylton decision and ruled unanimously that an income tax was an “excise or duty,” and not a “direct tax,” and did not need to be apportioned among the states. Springer v. United States, 102 U.S. 586 (1880).

That would seem to have settled the issue, except that the Supreme Court decided to re-examine the question of whether an income tax was a “direct tax” just 14 years later, and decided to limit (or “distinguish” ) the Hylton and Springer decisions.

In the first Pollock decision, a majority of the court (7 of the 9 justices) began with the premise that a tax on the income from property is the same as a tax on the value of the property itself, a premise completely inconsistent with every other Supreme Court decision before or since (and repudiated by the Supreme Court in New York v. Graves, 300 U.S. 308 (1937)). The Court then concluded that a tax on rents received from real property was a “direct tax” and unconstitutional unless apportioned. Pollock v. Farmers’ Loan and Trust Co., 157 U.S. 429 (1894). On rehearing, a narrower majority (5 of the 9 justices) decided that a tax on dividends, interest, and other income from personal property (i.e., property other than land) was also a “direct tax” and so unconstitutional unless apportioned. Pollock v. Farmers Bank and Trust Co., 158 U.S. 601 (1895).

As will be discussed in more detail below, the Pollock court was very clear that it was only a tax on the incomes from property that was a “direct tax,” and other forms of income could be taxed without apportionment. This was confirmed in Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916). Nevertheless, the Pollock decisions limited the ability of Congress to impose a taxes on incomes, because it was necessary to determine the source of the income. Wages, salaries, and other earned incomes could be taxed, and income from manufacturing and other business activities could be taxed, but rents, interest, dividends, and other incomes from property could not be taxed without apportionment (a very awkward process). The 16th Amendment was therefore proposed by Congress, and ratified by the states, so that Congress could tax incomes “from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Tax Protester “Evidence”

Most tax protester arguments that a tax on incomes is a “direct tax” rely in one way or another on the decisions of the U.S. Supreme Court in Pollock v. Farmers’ Loan and Trust Co., 157 U.S. 429 (1894), on reh’ng 158 U.S. 601 (1895), discussed above.

However, the Pollock decisions were rendered in 1894 and 1895 and there is no question but that the 16th Amendment, which was proposed in 1909 and ratified by the required three-fourths of the states in 1913, slightly less than four years later, was intended to over-rule the Pollock decisions.

“[T]there is no escape from the conclusion that the Amendment was drawn for the purpose of doing away for the future with the principle upon which the Pollock Case was decided....”

Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).

Any argument that relies upon the Pollock decisions is therefore almost certainly wrong.

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The income tax cannot apply to individual citizens, because that would be a “direct tax” prohibited by the Constitution.

False.

Although the meaning of “direct tax” has sometimes been questioned, it was always understood that taxes imposed by Congress could apply to, and be collected from, individual citizens, and that not every tax collected directly from the population was a “direct tax” within the meaning of the Constitution.

One common mistake made by tax protesters is in assuming that the phrase “Capitation, or other direct, Tax” in the Constitution is a reference to any tax that is collected “directly” from the person on whom it is imposed, while “indirect” taxes such as “Duties, Imposts and Excises” are collected on goods during manufacture, or in transit, and the ultimate burden is passed along to someone else (usually the consumer). That is a definition of “direct” and “indirect” that is frequently used by economists, but it is not the meaning of “direct” and “indirect” that has been applied by the U.S. Supreme Court.

In Hylton v. United States, 3 U.S. 171 (1796), the Supreme Court was unanimous in its opinion that Congress could impose a tax on a citizen of Virginia for carriages held for personal use and that the tax was an excise or duty and not “direct.” Of the four justices who heard the case, two (William Paterson and James Wilson) were members of the Constitutional Convention that drafted the Constitution, and presumably knew what it meant.

In Springer v. United States, 102 U.S. 586 (1880), the Supreme Court upheld the constitutionality of an income tax against an individual, William H. Springer, finding that the income tax was a constitutional “duty or excise” and not a “direct tax.”

In Tyee Realty Co. v. Anderson, 240 U.S. 115, 117 (1916), one of the appellants was an individual named Edwin Thorne, and he complained about the constitutionality of “a progressive tax on the income of individuals.” The Supreme Court denied the appeal saying that “we need not now enter into an original consideration of the merits of these contentions because each and all of them were considered and adversely disposed of in Brushaber v. Union P. R. Co., 240 U.S. 1, 60 L.Ed. __, 36 Sup. Ct. Rep. 236.” (And the Brushaber decision upheld the constitutionality of an income tax under the 16th Amendment.)

More recent judges have rejected this argument as well:

“[Becraft’s] position can fairly be reduced to one elemental proposition: The Sixteenth Amendment does not authorize a direct non-apportioned income tax on resident United States citizens and thus such citizens are not subject to the federal income tax laws. ... We hardly need comment on the patent absurdity and frivolity of such a proposition. For over 75 years, the Supreme Court and the lower federal courts have both implicitly and explicitly recognized the Sixteenth Amendment’s authorization of a non-apportioned direct income tax on United States citizens residing in the United States and thus the validity of the federal income tax laws as applied to such citizens.”

In re Becraft, 885 F.2d 547 (9th Cir., 1989).

“[W]e have rejected, on numerous occasions, the tax-protester argument that the federal income tax is an unconstitutional direct tax that must be apportioned. See, e.g., Lively v. Commissioner, 705 F.2d 1017, 1018 (8th Cir.1983) (per curiam)”

United States v. Gerads, 999 F.2d 1255 (8th Cir. 1993), cert. den. 510 U.S. 1193 (1994).

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: .. .. (3) the income tax is a direct tax which is invalid absent apportionment, and Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759, modified, 158 U.S. 601, 15 S.Ct. 912, 39 L.Ed. 1108 (1895), is authority for that and other arguments against the government’s power to impose income taxes on individuals.. ..”

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“It is generally agreed that Article I of the Constitution authorizes Congress to tax the income of individuals, and that the Sixteenth Amendment eliminated the requirement that such taxes be apportioned among the states.”

In re: Michael Fleming, 86 AFTR2d ¶2000-5138; No. 97-6342-8G3 (U.S.Bank.Ct. M.D.Fl. 8/9/2000).

“Congress may impose taxes on individuals in the states without apportionment among the several States, and ‘without regard to any census or enumeration,’ and ‘on incomes, from whatever source derived.’”

Secora v. United States, 1997 WL 460162, at 6 (U.S.D.C. Neb.).

The meaning of “direct tax” urged by many tax protesters as a “tax imposed directly” would trivialize the Constitution, because it reduces the constitutional definition of “direct tax” to a mere question of how the tax is collected. So, if the U.S. were to impose a tax on employees for the wages they receive, that would be a “direct tax” according to the tax protester definition, but if the U.S. were to impose a tax on employers for wages paid (or a tax on banks for the payment of interest, or on corporations for the payment of dividends), that would be an “indirect tax” and constitutional, even though the net effect would be exactly the same (i.e., the employees or depositors or shareholders would bear the burden of the tax through reduced wages and salaries, interest, or dividends). The meaning of “direct tax” that has been consistently applied by the Supreme Court is much more sensible (as well as consistent with the known intent of the framers of the Constitution), because it focuses on what is being taxed (the value of property, but not transfers of property) rather than on how the tax is collected.

A final note:

Some courts have referred to the income tax as a “non-apportioned direct tax,” which is unfortunate because it suggests that the income tax is a “Capitation, or other direct, Tax” that does not need to be apportioned, a suggestion that was explicitly rejected by the U.S. Supreme Court in Brushaber. Under the Constitution, a “direct tax” must be apportioned, while an “indirect tax” must be uniform throughout the United States. One of the questions raised in Brushaber was whether the 16th Amendment created a type of tax that need be neither apportioned nor uniform, and the court rejected that possibility, stating (in a rather convoluted sentence):

“[T]hat the contention that the Amendment treats a tax on income as a direct tax although it is relieved from apportionment and is necessarily therefore not subject to the rule of uniformity as such rule only applies to taxes which are not direct, thus destroying the two great classifications which have been recognized and enforced from the beginning, is also wholly without foundation since the command of the Amendment that all income taxes shall not be subject to apportionment by a consideration of the sources from which the taxed income may be derived forbids the application to such taxes of the rule applied in the Pollock Case by which alone such taxes were removed from the great class of excises, duties, and imposts subject to the rule of uniformity, and were placed under the other or direct class.”

Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916).

The court then went on to hold that the income tax satisfied the requirement of geographical uniformity imposed by the Constitution, even though the rate of tax was not uniform on all incomes.

Did the court in Becraft, quoted above, mean to say that the income tax is a “non-apportioned direct tax” that need not be uniform? No, because the question of uniformity was not raised with the court. This is merely confusion in terminology, the court using the word “direct” to describe a tax that is imposed and collected by the government directly from citizens or residents of the United States, not that the income tax is a “direct tax” within the meaning of the Constitution.

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The income tax is a “direct tax” because it is collected from individuals who cannot shift the burden to others.

As noted above, not all taxes that are collected directly are “direct taxes” within the meaning of the Constitution. One similar, but slightly more subtle argument, is that a “direct tax” is one that imposes a burden that cannot be shifted to someone else. Unfortunately, there is some support for this argument in the Pollock decision.

The majority opinion in one of the Pollock decisions introduced some confusion about the meaning of “direct tax” and “indirect tax” through the following statement:

“The first question to be considered is whether a tax on the rents or income of real estate is a direct tax within the meaning of the constitution. Ordinarily, all taxes paid primarily by persons who can shift the burden upon some one else, or who are under no legal compulsion to pay them, are considered indirect taxes; but a tax upon property holders in respect of their estates, whether real or personal, or of the income yielded by such estates, and the payment of which cannot be avoided, are direct taxes. Nevertheless, it may be admitted that, although this definition of direct taxes is prima facie correct, and to be applied in the consideration of the question before us, yet the constitution may bear a different meaning, and that such different meaning must be recognized.”

Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 558 (1895).

There are several problems with the meaning of “indirect taxes” as “all taxes paid primarily by persons who can shift the burden upon some one else” and “direct taxes” as taxes “the payment of which cannot be avoided”:

The last consideration seems to have been recognized by the Supreme Court itself, because in a later opinion it explicitly rejected the principle that an inability to shift the burden of a tax should be the test of whether a tax is “direct.” In Knowlton v. Moore, 178 U.S. 41, 81-82 (1900), the Supreme Court upheld the constitutionality of a federal inheritance tax), and referring to the assertion that it was decided in the Pollock case that “in order to determine whether a tax be direct within the meaning of the Constitution, it must be ascertained whether the one upon whom by law the burden of paying it is first cast can thereafter shift it to another person,” the court found that “this disputable theory was not the basis of the conclusion of the court” in Pollock.

The same (or similar) arguments were also rejected in Nicol v. Ames, 172 U.S. 509, 515 (1899) (“[I]t it is no part of the duty of this court to lessen, impede, or obstruct the exercise of the taxing power by merely abstruse and subtle distinctions as to the particular nature of a specified tax, where such distinction rests more upon the differing theories of political economists than upon the practical nature of the tax itself.”)

This argument was most recently rejected by a Circuit Court in Murphy v. I.R.S., 493 F.3d 170, No. 05-5139 (D.C. Cir. 7/3/2007). vacating 460 F.3d 79 (8/22/2006).

In any event, the argument is completely academic with respect to incomes, because the 16th Amendment plainly states that Congress can impose taxes on incomes without apportionment, so it is constitutional to require individuals to pay a tax directly on their incomes, regardless of what the Constitution might have previously meant.

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The income tax cannot apply to wages, because that would be a “direct tax” that must be apportioned in accordance with the Constitution.

False. There is nothing in the Constitution that says that wages or income from labor cannot be taxed, or that a tax on wages or income from labor is a “direct” tax. And it has been the consistent opinion of the Supreme Court beginning with Hylton v. United States, 3 U.S. 171 (1796), and continuing with Springer v. United States, 102 U.S. 586 (1880), Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601 (1895), and Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916), that the phrase “direct tax” only applies to a tax on the value of property.

“This review [of the history of Congressional impositions of “direct taxes”] shows that personal property, contracts, occupations, and the like, have never been regarded by Congress as proper subjects of direct tax.”

Veazie Bank v. Fenno, 75 U.S. 533, 543 (1869).

The income tax that was contested in the Springer decision in 1880 was a tax on “the annual gains, profits, or income of every person residing in the United States, or any citizen of the United States residing abroad, whether derived from any kind of property, rents, interests, dividends, salaries, or from any profession, trade, employment, or vocation, carried on in the United States or elsewhere, or from any other source whatever....” Act of June 30, 1864, ch. 173, Sec. 116, 18 Stat. 223, 281. The statute therefore taxed all forms of earned income, specifically including references to both “salaries” and incomes from “employment.” The constitutionality of the statute was challenged by a lawyer with income from his legal practice (i.e., his labor), and the Supreme Court unanimously upheld the constitutionality of the tax, holding that it was a “duty or excise” that did not need to be apportioned. Springer v. United States, 102 U.S. 586 (1880).

The income tax that was challenged in the Pollock decision was similar, and the majority opinion first struck down the tax on incomes from property (i.e., rents, interests, and dividends), but then went on to state that, if only the tax on interest, rents, dividends, and other income from property were ruled unconstitutional, “this would leave the burden of the tax to be borne by professions, trades, employments, or vocations; and in that way a tax on capital would remain in substance a tax on occupations and labor.” Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 637 (1895). The majority opinion therefore held that the entire tax act was unconstitutional, believing that Congress would invalidate the entire tax act rather than tax only “occupations and labor.” (The minority opinion in Pollock believed that the entire tax was constitutional, and so did not need to distinguish between income from property and income from employment.)

That a tax on wages and other compensation for labor would have been constitutional even before the adoption of the 16th Amendment was confirmed by the unanimous decision of the Supreme Court in Brushaber, in which the court stated:

“Nothing could serve to make this clearer than to recall that in the Pollock Case, in so far as the law taxed incomes from other classes of property than real estate and invested personal property, that is, income from ‘professions, trades, employments, or vocations,’ (158 U.S. 637), its validity was recognized; indeed it was expressly declared that no dispute was made upon that subject, and attention was called to the fact that taxes on such income had been sustained as excise taxes in the past. Id. p. 635.”

Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).

See also, Charczuk v. Commissioner, 771 F.2d 471, 473, 56 A.F.T.R.2d 85-5740, 85-2 USTC P 9656 (10th Cir. 1985) (“While ruling that a tax upon income from real and personal property is invalid in the absence of apportionment, the Supreme Court [in Pollock] explicitly stated that taxes on income from one’s employment are not direct taxes and are not subject to the necessity of apportionment.”)

That Congress has the power to tax wages and salaries is also confirmed by the Supreme Court decisions dealing with the taxation of wages and salaries paid by state governments.

After the Brushaber decision, the Supreme Court still followed the doctrine (established by the decision in Collector v. Day, 78 U.S. 113 (1870)) that the federal government could not tax the salaries of employees of the states performing “essential governmental functions.” (Cf. Brush v. Commissioner, 300 U.S. 352.) However, in a case challenging the application of the federal income tax to the salaries of employees of the Port of New York Authority (a bi-state corporation formed by New York and New Jersey), the Supreme Court clearly stated that Congress could tax the earnings of those employees in the same manner as employees private businesses:

“The challenged taxes laid under section 22, Revenue Act of 1932, c. 209, 47 Stat. 169, 178, 26 U.S.C.A. 22, are upon the net income of respondents, derived from their employment in common occupations not shown to be different in their methods or duties from those of similar employees in private industry. The taxpayers enjoy the benefits and protection of the laws of the United States. They are under a duty to support its government and are not beyond the reach of its taxing power. A nondiscriminatory tax laid on their net income, in common with that of all other members of the community, could by no reasonable probability be considered to preclude the performance of the function which New York and New Jersey have undertaken, or to obstruct it more than like private enterprises are obstructed by our taxing system.”

Helvering v. Gerhardt, 304 U.S. 405, 420 (1938) (emphasis added).

The Supreme Court explicitly overruled Collector v. Day in Graves v. New York ex rel. O’Keefe, 306 U.S. 466, 486 (1939), stating that “we perceive no basis for a difference in result whether the taxed income be salary or some other form of compensation, or whether the taxpayer be an employee or an officer of either a state or the national government, or of its instrumentalities.”

In an earlier decision, Helvering v. Powers, 293 U.S. 214 (1934), the trustees of the Boston Elevated Railway Company claimed that their compensation by the railway was constitutionally exempt because they were officers of the commonwealth of Massachusetts. The court first observed that, although the “governmental functions” of a state were immune from federal taxation, “the state cannot withdraw sources of revenue from the federal taxing power by engaging in businesses which constitute a departure from usual governmental functions and to which, by reason of their nature, the federal taxing power would normally extend.” 293 U.S. at 225. Holding that the operation of a street railway was not a “governmental function” and could be taxed by the United States in the same way as any other business, the Supreme Court concluded that the compensation of the trustees could also be taxed:

“If the business itself, by reason of its character, is not immune, although undertaken by the state, from a federal excise tax upon its operations, upon what ground can it be said that the compensation of those who conduct the enterprise for the state is exempt from a federal income tax? Their compensation, whether paid out of the returns from the business or otherwise, can have no quality, so far as the federal taxing power is concerned, superior to that of the enterprise in which the compensated service is rendered. ... We conclude that the Congress had the constitutional authority to lay the tax.”

Helvering v. Powers, 293 U.S. 214, 227 (1934) (emphasis added).

None of these decisions would have been unnecessary if Congress did not have the power to tax wages and salaries generally. The decisions were necessary only because the Supreme Court already knew that it was constitutional to tax the compensation of a private business and so the issue was whether state employees should be treated differently. The Supreme Court initially held that state employees should be treated differently, but then eventually reversed itself and concluded that the same taxes should be paid by state employees as any other employee.

In the case of Commissioner v. Kowalski, 434 US 77 (1977), the Supreme Court held that meal allowances paid by the state of New Jersey to state troopers constituted income subject to tax. After restating the principle that Congress intended to tax “all gains except those specifically exempted,” the court stated that:

“In the absence of a specific exemption, therefore, respondent’s meal-allowance payments are income within the meaning of [I.R.C. section] 61 since, like the payments involved in Glenshaw Glass Co., the payments are ‘undeniabl[y] accessions to wealth, clearly realized, and over which the [respondent has] complete dominion.’”

Commissioner v. Kowalski, 434 US 77, 83 (1977).

Once again, the Supreme Court would never had reached the issue of whether “meal allowances” were income unless the justices had already concluded that wages, salaries, or other compensation paid to an employee were income subject to tax.

As recently as 1991, the Supreme Court referred to arguments that the Sixteenth Amendment did not authorize a tax on wages and salaries, and that the federal income tax was unconstitutional, as “surely frivolous.” Cheek v. United States, 498 U.S. 192 (1991).

In the history of the United States, not a single judge has ever expressed an opinion suggesting that a tax on income from employment was a “direct tax” that must be apportioned. Not one. Never.

And even if a tax on wages might have once been considered to be a “direct tax” that must be apportioned, the 16th Amendment plainly states that Congress can tax incomes, and wages are a form of income.

The lower courts have therefore had no problem in holding that an unapportioned income tax on wages is constitutional.

“In Brushaber, the Court found the 1913 income tax law to be constitutional. The Court also noted that in Pollock v. Farmers’ Loan and Trust Co., 158 U.S. 601 (1895) it had previously found the taxing of income from professions, trades, employments or vocations to be constitutional in the form of an excise tax. In light of the [S]ixteenth [A]mendment, however, all taxation of income, ’from whatever source derived,’ was found to be constitutional in Brushaber.”

Martin v. Commissioner, 756 F.2d 38, 40 (6th Cir. 1985), aff’g. T.C. Memo. 1983-473.

“Taxpayers’ argument that compensation for labor is not constitutionally subject to the federal income tax is without merit. There is no constitutional impediment to levying an income tax on compensation for a taxpayer’s labors. [Citations omitted] Furthermore, § 61(a) of the Code defines gross income as ‘all income from whatever source derived, including . . . compensation for services.’ In sum, the sixteenth amendment authorizes the imposition of a tax upon income without apportionment among the states, and under the statute, the term ‘income’ includes the compensation a taxpayer receives in return for services rendered. Taxpayers’ argument that wages received for services are not taxable as income is clearly frivolous.”

Funk v. Commissioner, 687 F.2d 264, 265 (8th Cir. 1982), affirming T.C. Memo. 1981-506.

See also, United States v. Schiff, 780 F. 2d 210 (2nd Cir. 1986); United States v. Schiff, 801 F.2d 108 (2nd Cir. 1986); United States v. Schiff, 876 F.2d 272 (2nd Cir. 1989); United States v. Schiff, 919 F.2d 830 (2nd Cir. 1990); Schiff v. Commissioner, 751 F.2d 115 (2nd Cir. 1985); Schiff v. Commissioner, 47 TCM 1706 (US Tax Court 1984); Hyslep v. United States, 765 F.2d 1083 (11th Cir. 1985); Lovell v. United States, 755 F.2d 517 (7th Cir. 1984); United States v. Aitken, 755 F.2d 188 (1st Cir. 1984); Wilcox v. Commissioner, 848 F.2d 1007 (9th Cir. 1988), aff’g. T.C. Memo. 1987-225; Carter v. Commissioner, 784 F.2d 1006, 1009 (9th Cir. 1986); Sullivan v. United States, 788 F.2d 813 (1st Cir. 1986); Casper v. Commissioner, 805 F.2d 902 (10th Cir. 1986); Connor v. Commissioner, 770 F.2d 17 (2nd Cir. 1985); United States v. Bonneau, 970 F.2d 929 (1st Cir. 1992).

Tax Protester “Evidence”

In claiming that a tax on wages or other incomes should be considered a “capitation” and so a “direct tax,” tax protesters frequently quote from economist Adam Smith’s “An Inquiry into the Nature and Causes of the Wealth of Nations,” first published in 1776 and usually cited as “The Wealth of Nations.”

“Capitation taxes, so far as they are levied upon the lower ranks of people, are direct taxes upon the wages of labor….”

Smith, Adam, Wealth of Nations, Book V, Part II, Article IV.

As far as the author has been able to determine, the above quotation has never been cited or discussed by any federal court. And, as will be explained below, the Supreme Court has stated that the writings of Adam Smith are not reliable evidence of the meaning of “direct tax” as used in the Constitution.

In the first Supreme Court decision to address the question of what was meant by “direct tax” in the Constitution, Hylton v. United States, 3 U.S. 171 (1796), one of the four opinions (that of Paterson, J.) does quote Adam Smith in support of the conclusion that a tax on the ownership of a carriage was not a direct tax. 3 U.S. at 180-181. However, Justice Paterson’s own view of the scope of “direct tax” was somewhat limited, because he stated that “Whether direct taxes, in the sense of the Constitution, comprehend any other tax than a capitation tax, and tax on land, is a questionable point.” 3 U.S. 177.

The next time that Adam Smith is mentioned in a Supreme Court opinion is in a unanimous opinion written by Chief Justice Chase in 1869:

“Much diversity of opinion has always prevailed upon the question, what are direct taxes? Attempts to answer it by reference to the definitions of political economists have been frequently made, but without satisfactory results. The enumeration of the different kinds of taxes which Congress was authorized to impose was probably made with very little reference to their speculations. The great work of Adam Smith, the first comprehensive treatise on political economy in the English language, had then been recently published; but in this work, though there are passages which refer to the characteristic difference between direct and indirect taxation, there is nothing which affords any valuable light on the use of the words ‘direct taxes’ in the Constitution.”

Veazie Bank v. Fenno, 75 U.S. (8 Wall.) 533, 541-542 (1869) (emphasis added).

This sentiment was followed in the second Pollock decision, in which the majority stated:

“This court is again urged to consider this question in the light of the theories advanced by political economists. But Chief Justice Chase, delivering the judgment of this court in Bank v. Fenno, 8 Wall. 533, 541, observed that the enumeration of the different kinds of taxes that congress was authorized to impose was probably made with very little reference to the speculations of political economists, and that there was nothing in the great work of Adam Smith, published shortly before the meeting of the convention of 1787, that gave any light on the meaning of the words ‘direct taxes’ in the constitution.”

Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 641-642 (1895) (emphasis added).

Neither opinion explains exactly why Adam Smith’s “direct tax” should be different from the Constitution’s “direct tax,” but the differences can be seen by examining the point of view of Adam Smith expressed in his book. He begins his discussion “Of Taxes” (Book V, Part II), with the following statement:

“The private revenue of individuals, it has been shown in the first book of this Inquiry, arises ultimately from three different sources: Rent, Profit, and Wages. Every tax must finally be paid from some one or other of those three different sorts of revenue, or from all of them indifferently.”

Every tax is “direct” with respect to the thing (or transaction) actually taxed, and every “direct tax” might be considered to be “indirect” with respect to something other than the thing actually taxed. So, for example, a sales tax is a “direct tax” on purchases, and could be considered to be an “indirect tax” on the income used to make the purchase. In an economic sense, questions about the differences between “direct” and “indirect” taxes cannot be answered without knowing the frame of reference.

From the quotation above (and Wealth of Nations as a whole), it is clear that Adam Smith believed that all taxes must be paid from income. (Inheritance and estate taxes were addressed in an appendix.) From that point of view, a tax on income would be “direct” and any other kind of tax would be either “indirect” or “indifferent” in how the tax applied to income. But the authors of the Constitution had a very different idea of what they referred to as “direct.” For example, they considered a capitation to be “direct” in all cases, while Smith considered a capitation to be “direct” only in the case of laborers who had no other source of income with which to pay the tax. It is also well established that the authors of the Constitution considered a tax on the value of land to be a “direct tax” even though a tax on the value of land might have little or nothing to do with the income produced by the land. (There is a fuller discussion above of what the authors of the Constitution considered a “direct tax.”)

So the Supreme Court was correct to disregard the opinions of Adam Smith and other “political economists” in determining what is a “direct tax” within the meaning of the Constitution.

In any event, and as noted elsewhere in this FAQ, the question of whether a tax on wages or other incomes is a “direct tax” became irrelevant following the ratification of the 16th Amendment, which declares that Congress has the power to tax incomes without apportionment.

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Wages cannot be taxed because our labor is our property, and so a tax on labor would be a tax on property and a “direct tax” within the meaning of the Constitution.

It is difficult to understand how you can claim a property right in something you haven’t done yet. If your labor were “property” like other property, you could sell it and then sit back and do nothing. However, if you “sell” your labor and are paid for it, you still have to work to earn it.

Even if the major premise is correct, and labor is a form of property, the conclusion is still wrong because the Internal Revenue Code does not tax labor itself, but the compensation received for labor (i.e., the income from labor).

If you go into your back yard and work for a week taking clay and making pots, there is no income and no tax. However, if you sell your pots, you have income because you have taken in money, and have more money than you had before. Similarly, if you “sell your labor” by agreeing to work in someone else’s factory (or farm) for a week, you have sold your labor and the compensation you receive is taxable.

As a general proposition, it is correct that Congress cannot tax the value of property directly (or at least not without apportionment), but can only tax exchanges or transfers of property. For example, the federal estate tax is clearly a tax on the value of property, and yet it has been held to be constitutional as an excise tax on the transfer of the property at death. Knowlton v. Moore, 178 U. S. 41 (1900). Similarly, Congress cannot tax the value of real property, but can tax sales or transfers of real property. So the income tax is a tax on the receipt of income, and the sale of labor is a transaction that allows the constitutional imposition of a tax.

Of course, every court that has been forced to rule on this issue has ruled against the tax protester raising it.

“Finally, the taxpayer argues that because wages are property, a tax on them is a property tax, and because the tax the Commissioner is attempting to collect is not apportioned, it is unconstitutional. However, as we and innumerable other courts have repeatedly explained, wages are income, and income taxes do not need to be apportioned.”

Connor v. Commissioner, 770 F.2d 17, 20 (2nd Cir. 1985), (the court not only ruled against the taxpayer, but also imposed sanctions of $2,000 against the taxpayer).

“It is clear beyond peradventure that the income tax on wages is constitutional.”

Stelly v. Commissioner, 761 F.2d 1113, 1115 (5th Cir. 1985), cert. den. 106 S.Ct. 149 (1985).

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Income taxes are not “Duties, Imposts, or Excises” and so must be “direct taxes” that must be apportioned.

This argument is one of two slightly different ways of claiming that the 16th Amendment does not mean what it says. (The other is the argument that income cannot be taxed by an “excise” is unless the income is from a “privilege” or “revenue taxable activity.”)

From the very first court decisions on the Congressional power to tax, is has been recognized that there are two different kinds of taxes under the Constitution:

“In the matter of taxation, the Constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely: The rule of apportionment as to direct taxes, and the rule of uniformity as to duties, imposts, and excises.”

Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916), quoting from Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 557 (1895).

Relying on this division of taxes, the argument that an income tax is a direct tax then becomes one of exclusion. Having failed to show that a tax on incomes in general (or wages in particular) is a “direct tax,” the tax protester attempts to argue that it is not a duty, impost, or excise, and must therefore be a “direct tax.” The circularity of these arguments were recognized by Justice Paterson in 1796:

“In behalf of the plaintiff in error, it has been urged, that a tax on carriages does not come within the description of a duty, impost, or excise, and therefore is a direct tax. It has, on the other hand, been contended, that as a tax on carriages is not a direct tax; it must fall within one of the classifications just enumerated, and particularly must be a duty or excise. The argument on both sides turns in a circle; it is not a duty, impost, or excise, and therefore must be a direct tax; it is not tax, and therefore must be a duty or excise.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Paterson).

Justice Paterson went on to express some uncertainty about the meanings of “duty” and “excise”:

“What is the natural and common, or technical and appropriate, meaning of the words, duty and excise, it is not easy to ascertain. They present no clear and precise idea to the mind. Different persons will annex different significations to the terms.”

Justice Paterson then suggested that there might be “indirect taxes” subject to the rule of uniformity that were not “duties, imposts, and excises”:

“There may, perhaps, be an indirect tax on a particular article, that cannot be comprehended within the description of duties, or imposts, or excises; in such case it will be comprised under the general denomination of taxes. For the term tax is the genus, and includes,
“1. Direct taxes.
“2. Duties, imposts, and excises.
“3. All other classes of an indirect kind, and not within any of the classifications enumerated under the preceding heads.
“The question occurs, how is such tax to be laid, uniformly or apportionately? The rule of uniformity will apply, because it is an indirect tax, and direct taxes only are to be apportioned.”

Justice Chase took a different view, believing that a tax that was not “direct,” and not a duty, impost, or excise, was within the power of Congress and would not need to be apportioned nor uniform:

“If there are any other species of taxes that are not direct, and not included within the words duties, imposts, or excises, they may be laid by the rule of uniformity, or not; as Congress shall think proper and reasonable. If the framers of the Constitution did not contemplate other taxes than direct taxes, and duties, imposts, and excises, there is great inaccuracy in their language. If these four species of taxes were all that were meditated, the general power to lay taxes was unnecessary.”

Justice Chase also considered the word “duty” to be extremely broad in scope, being almost synonymous with the word “tax”:

“The term duty, is the most comprehensive next to the generical term tax; and practically in Great Britain, (whence we take our general ideas of taxes, duties, imposts, excises, customs, etc.) embraces taxes on stamps, tolls for passage, etc. etc. and is not confined to taxes on importation only.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Chase).

It is therefore clear that the justices who decided the Hylton case did not think that the words “duties, imposts, or excises” had meanings that were sufficiently clear or definite to restrict the power of Congress to tax. And this has been the consistent position of the Supreme Court ever since.

Rejecting a claim that Congress could not impose a tax on bank notes, the Supreme Court stated:

“[T]he words direct taxes, as used in the Constitution, comprehended only capitation taxes, and taxes on land, and perhaps taxes on personal property by general valuation and assessment of the various descriptions possessed with the several States. It follows necessarily that the power to tax without apportionment extends to all other objects. Taxes on other objects are included under the heads of taxes not direct, duties, imposts, and excises, and must be laid and collected by the rule of uniformity.”

Veazie Bank v. Fenno, 75 U.S. 533, 546 (1869)

Responding to a claim that Congress could not impose a stamp tax upon a document for the sale of corporate stock, the Supreme Court stated:

“There is no occasion to attempt to confine the words duties, imposts, and excises to the limits of precise definition. We think that they were used comprehensively to cover customs and excise duties imposed on importation, consumption, manufacture, and sale of certain commodities, privileges, particular business transactions, vocations, occupations, and the like.”

Thomas v. United States, 192 U.S. 363, 371 (1904).

The Supreme Court has therefore rejected the argument that Congress is limited to those articles or activities that were taxed as “excises” at the time of the adoption of the Constitution:

“Doubtless there were many excises in colonial days and later that were associated, more or less intimately, with the enjoyment or use of property. This would not prove, even if no others were then known, that the forms then accepted were not subject to enlargement.”

Chas. C. Steward Machine Co. v. Davis, 301 U.S. 548, 580 (1937).

In deciding whether Congress had the power to impose Social Security taxes as an “excise,” the Supreme Court then rejected the idea that the label “excise” had any real significance:

“Whether the tax is to be classified as an ‘excise’ is in truth not of critical importance. If not that, it is an ’impost’ [citations omitted] or a ‘duty’ [citations omitted].”

Chas. C. Steward Machine Co. v. Davis, 301 U.S. 548, 581-582 (1937) (upholding the Social Security tax paid by employers as “a duty, an impost, or an excise upon the relation of employment”).

The lower courts have likewise rejected the idea that the word “excise” limits the power of Congress to tax. For example:

“Turning first to their basic contention, indeed the one on which all the others rest, that the relation of domestic employment does not come within Art. 1, Section 8, and is therefore immune from the imposition of federal taxes and burdens, we find ourselves in no doubt that appellants are neither historically nor etymologically correct in their claim in substance that excises are limited to taxes laid on the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupation and upon corporate privileges only. It is true that taxes of the kind referred to are excise taxes but it is also true, as was held in Steward Machine Co. v. Davis, that the excises which Congress has power to impose are not limited to vocations or activities which may be prohibited altogether or to those which are the outcome of a franchise, but extend to vocations or activities pursued as of common right. The term ‘excise’ is and was before and at the time of the adoption of the Constitution a term of very wide meaning.”

Abney v. Campbell, 206 F.2d 836, 841 (5th Cir. 1953), cert. den. 346 U.S. 924 (1954).

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Wages cannot be taxed because the exercise of a fundamental right cannot be taxed and the right to work is a fundamental right reserved to the citizens of the United States by the 10th Amendment to the Constitution.

This is absolutely wrong in every way.

The idea that there may be rights or privileges that are exempt from taxation has been rejected from the very beginnings of the United States. In rejecting such a claim in 1830, Chief Justice Marshall wrote:

“The power of legislation, and consequently of taxation, operates on all the persons and property belonging to the body politic. This is an original principle, which has its foundation in society itself. It is granted by all, for the benefit of all. It resides in government as a part of itself, and need not be reserved when property of any description, or the right to use it in any manner, is granted to individuals or corporate bodies. However absolute the right of an individual may be, it is still in the nature of that right, that it must bear a portion of the public burthens; and that portion must be determined by the legislature.”

Providence Bank v. Billings, 29 U.S. 514, 563 (1830), (emphasis added).

In upholding the power of New York to tax a bequest to the United States, the Supreme Court observed in 1896 that:

“[T]he laws of all civilized states recognize in every citizen the absolute right to his own earnings, and to the enjoyment of his own property, and the increase thereof, during his life, except so far as the state may require him to contribute his share for public expenses....”

United States v. Perkins, 163 U.S. 625, 627 (1896).

So even rights that the Supreme Court refers to as “absolute“ may be subject to tax.

The idea that the “right to work” is somehow exempt from tax was expressly refuted by the Supreme Court in 1937, upholding the constitutionality of the Social Security tax paid by employers on wages:

“But natural rights, so called, are as much subject to taxation as rights of lesser importance. An excise is not limited to vocations or activities that may be prohibited altogether. It is not limited to those that are the outcome of a franchise. It extends to vocations or activities pursued as of common right.”

Charles C. Steward Machine Co. v. Davis, 301 U.S. 548 (1937).

On the same day that the Steward Machine case was decided, the same justices confirmed the same principle in upholding the constitutionality of an Alabama unemployment tax:

“Taxes, which are but the means of distributing the burden of the cost of government, are commonly levied on property or its use, but they may likewise be laid on the exercise of personal rights and privileges. As has been pointed out by the opinion in the Chas. C. Steward Machine Co. Case, such levies, including taxes on the exercise of the right to employ or to be employed, were known in England and the Colonies before the adoption of the Constitution, and must be taken to be embraced within the wide range of choice of subjects of taxation....”

Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 508 (1937).

The idea that Congress is limited by “natural law” was more recently rejected in Koar v. United States, 98-2 U.S. Tax Cas. P50,748, 82 A.F.T.R.2d 6329 (S.D.N.Y. 1999). In dismissing a suit for the refund of all federal income tax, social security, and Medicare contributions withheld from the plaintiff’s wages between 1993 and 1994, Judge Kimba Wood wrote:

“Plaintiff thus appears to argue that this Court should look to principles of natural law, or more accurately, his preferred principles of natural law, as opposed to the positive law by which it is bound. That, however, is not this province of this Court.”

Judge Wood then quoted from the opinion of Justice Iredell in Calder v. Bull, 3 U.S. 386, 398-99 (1798) (opinion dissenting in part):

“If, on the other hand, the Legislature of the Union, or the Legislature of any member of the Union, shall pass a law, within the general scope of their constitutional power, the Court cannot pronounce it to be void, merely because it is, in their judgment, contrary to the principles of natural justice. The ideas of natural justice are regulated by no fixed standard: the ablest and the purest men have differed upon the subject; and all that the Court could properly say, in such an event, would be, that the Legislature (possessed of an equal right of opinion) had passed an act which, in the opinion of the judges, was inconsistent with the abstract principles of natural justice.”

Under this principle of constitutional law, the courts cannot refuse to enforce the federal income tax merely because one or more judges believe that the tax is contrary to their concepts of “natural law” or “natural rights.”

Tax Protester “Evidence”

The belief that “natural rights” cannot be taxed is purely wishful thinking, but tax protesters sometimes cite some misleading quotations from irrelevant cases that they think support their position, such as:

“The right to live and own property are natural rights for the enjoyment of which an excise can not be imposed.”

Redfield v. Fisher, 135 Or. 180, 292 P. 813 (1930), reh’g den., 135 Or. 205, 295 P. 461 (1931).

But that is a decision of the Oregon Supreme Court, not a federal court, and the tax in question was not even an income tax. Oregon has an income tax, and the Oregon courts enforce it. For example:

“Taxpayer cites Redfield v. Fisher, 135 Or 180, 292 P 813 (1930) reh’g den, 135 Or 205, 295 P 461 (1931) for the proposition that an individual, unlike a corporation, may not be taxed for the mere privilege of existing. He then extends that statement to encompass the act of earning a living. That extension is erroneous. The court in Redfield knew of, and in no way questioned, the then existing Oregon tax on the income of individuals.”

Clark v. Dept. of Revenue, TC 4604, note 3 (Or. Tax Court 10/6/2003) (sanctions of $5,000 imposed against the taxpayer for bringing a frivolous appeal, arguing “that a citizen of Oregon is not liable for Oregon personal income tax on wages”).

Another case often cited by tax protesters is from Arkansas:

“An income tax is neither a property tax nor a tax on occupations of common right, but is an excise tax...The legislature may declare as ‘privileged’ and tax as such for state revenue, those pursuits not matters of common right, but it has no power to declare as a ‘privilege’ and tax for revenue purposes, occupations that are of common right.”

Sims v. Ahrens, 167 Ark. 557, 271 S.W. 720 (1925).

That decision is from the Arkansas Supreme Court, and not the United States Supreme Court, and is about the Arkansas Constitution, and not the United States Constitution. Even worse, the quotation is from what turned out to be the minority opinion, so it’s not even a correct statement of the law in Arkansas. The majority opinion was as follows:

“My conclusion of the whole matter is that there are two, and only two, limitations in our [state] Constitution upon the power of the state to raise revenue for state purposes, namely (1) that taxes on property must be ad valorem, equal and uniform; and (2) that the Legislature cannot lay a tax for state revenue on occupations that are of common right. A tax on incomes is neither a property tax nor an occupation tax, and is not prohibited or excluded by our Constitution.“

Sims v. Ahrens, 167 Ark. 557, 271 S.W. 720 (1925) (emphasis added).

Attempting to establish that “rights” cannot be taxed, tax protesters will also cite:

“A state may not impose a charge for the enjoyment of a right granted by the federal constitution.”

Murdock v Pennsylvania, 319 US 105, 113 (1943).

But the court in the very next sentence declared that “Thus, it [the state] may not exact a license tax for the privilege of carrying on interstate commerce (citation omitted), although it may tax the property used in, or the income derived from, that commerce, so long as those taxes are not discriminatory.” Which means that, regardless of whether a state can tax the “right to work,” the state can still tax the income from the exercise of that right. Accord, Allison McCoy v. United States, 88 AFTR2d 2001-5607, 2001 TNT 236-16, No. 3:00-CV-2786-M (U.S.D.C. N.D.Tex. 11/16/2001).

And the Supreme Court has repeatedly stated that nondiscriminatory taxes can apply to newspapers and other publications protected by the First Amendment. (“It is beyond dispute that the States and the Federal Government can subject newspapers to generally applicable economic regulations [including taxes] without creating constitutional problems.” Minneapolis Star & Tribune v. Minnesota Commissioner of Revenue, 460 U.S. 575, 581 (1983). See also, Arkansas Writers’ Project v. Ragland, 481 U.S. 221, 228 (1987) (“a genuinely nondiscriminatory tax on the receipts of newspapers would be constitutionally permissible”); Grosjean v. American Press, 297 U.S. 233, 250 (1936) (“It is not intended by anything we have said to suggest that the owners of newspapers are immune from any of the ordinary forms of taxation for support of the government.”). Similarly, the Supreme Court has upheld an obligation to withhold Social Security taxes from the wages of employees even when the withholding violates the religious beliefs of the employer. United States v. Lee, 455 U.S. 252 (1982).

So the Supreme Court has consistently upheld the imposition of taxes on incomes even when the incomes are derived from the exercise of constitutional rights.

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The authors of the Constitution (aka, the “Founding Fathers”) never intended to give Congress the power to tax wages or other incomes from labor.

Another example of the triumph of hope over reason, because there is absolutely no historical evidence for such a belief.

Article I, Section 8, of the Constitution says that “The Congress shall have Power to lay and collect Taxes, Duties, Imposts, and Excises...” The only specific exemption is in Section 9, which prohibits taxes on exports.

In Hylton v. United States, the three justices who wrote opinions were unanimous in their view that the Congressional power to tax was a general (or “plenary”) power, the only exception being exports. Justice Chase stated that:

“The power, in the eighth section of the first article, to lay and collect taxes, included a power to lay direct taxes, (whether capitation, or any other) and also duties, imposes, and excises; and every other species or kind of tax whatsoever, and called by any other name. ... I consider the Constitution to stand in this manner. A general power is given to Congress, to lay and collect taxes, of every kind or nature, without any restraint, except only on exports...”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Chase; emphasis added).

In the same case, Justice Paterson (who was a member of the Constitutional Convention) stated:

“It was, however, obviously the intention of the framers of the Constitution, that Congress should possess full power over every species of taxable property, except exports. The term taxes, is generical, and was made use of to vest in Congress plenary authority in all cases of taxation.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Paterson; emphasis added).

And, finally, Justice Iredell stated:

“The Congress possess the power of taxing all taxable objects, without limitation, with the particular exception of a duty on exports.

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Iredell; emphasis added).

In a later decision, the Supreme Court confirmed these conclusions, stating that:

“It is true that the power of Congress to tax is a very extensive power. It is given in the Constitution with only one exception and only two qualifications. Congress cannot tax exports, and it must impose direct taxes by the rule of apportionment and indirect taxes by the rule of uniformity. Thus, limited, and thus only, it reaches every subject, and may be exercised at discretion.”

License Tax Cases, 72 U.S. 462, 471 (1866) (emphasis added).

In the Federalist Papers, Hamilton had stated that the Congressional power to tax would be “concurrent and coequal” with the power of the states to tax (Federalist #32) and the Supreme Court has agreed that “The subject-matter of taxation open to the power of the Congress is as comprehensive as that open to the power of the states....” Chas. C. Steward Machine Co. v. Davis, 301 U.S. 548, 581 (1937). See also, Flint v. Stone Tracy Co., 220 U.S. 107, 154 (1911). And, before and after the adoption of the Constitution, several states imposed taxes on professions, vocations, or employments. As explained by the Supreme Court:

“Taxes, which are but the means of distributing the burden of the cost of government, are commonly levied on property or its use, but they may likewise be laid on the exercise of personal rights and privileges. As has been pointed out by the opinion in the Chas. C. Steward Machine Co. Case [301 U.S. 548 (1937)], such levies, including taxes on the exercise of the right to employ or to be employed, were known in England and the Colonies before the adoption of the Constitution, and must be taken to be embraced within the wide range of choice of subjects of taxation, which was an attribute of the sovereign power of the states at the time of the adoption of the Constitution, and which was reserved to them by that instrument. As the present levy [imposed by Alabama on wages paid] has all the indicia of a tax, and is of a type traditional in the history of Anglo-American legislation, it is within state taxing power, and it is immaterial whether it is called an excise or by another name.”

Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 508-509 (1937).

If the states had the power to tax wages, salaries, and other incomes from employment, then the Congress of the United States had the same power. (For other examples, see the cases cited in the discussion of whether a tax on wages is a “direct tax.”)

There have been a few Supreme Court decisions that have found incomes that Congress did not have the power to tax. However, all of those decisions arose out of considerations of federalism (i.e., the relationship between the federal and state governments) or the separation of powers within the federal government, and all of those decisions were over-ruled by later decisions and are no longer good law. For example:

So, over the years, the Supreme Court has considered the possibility that certain types of income from government-related activities might be constitutionally exempt from income tax, but eventually decided that no such exemptions existed. Tax protesters sometimes find and quote those decisions, not realizing (or not caring) that the decisions represent relatively short-lived experiments in inter-governmental immunities and are simply not relevant to federal taxes on incomes unrelated to any governmental activity.

There is not a single decision in the history of the United States in which any judge has ever even suggested that Congress cannot tax wages and salaries generally.

And, if the salaries of state employees can be taxed by Congress, it is ludicrous to suggest that ordinary salaries paid by private employers might have some kind of immunity from tax.

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Congress can only tax income from the exercise of “privileges” or the income from “revenue taxable activities” or “taxable excise activities.”

This argument is usually based on quotations taken out of context from unrelated court decisions. The tax protester first quotes from a court decision that refers to the income tax as an “excise” (usually a decision declaring that the income tax is constitutional because it is not a “direct tax” that must be apportioned), then quotes from a very different court decision that refers to an “excise” as a tax on the exercise of a “privilige” (usually an old, pre-16th Amendment decision upholding a tax on incomes from certain activities), then quotes from a third very different court decision that states that the freedom to contract for employment is a right and not a “privilege” (usually a labor law case) and then mashes (or “chains”) the three unrelated decisions together to form the conclusion that an income tax can only be imposed on income from the exercise of a “privilege” that can be granted or denied by the government, but that an income tax cannot be imposed on income earned through the exercise of a fundamental right, such as through a contract for employment.

This argument was squarely rejected by the Supreme Court in Charles C. Steward Machine Co. v. Davis, 301 U.S. 548 (1937):

“But natural rights, so called, are as much subject to taxation as rights of lesser importance. An excise is not limited to vocations or activities that may be prohibited altogether. It is not limited to those that are the outcome of a franchise. It extends to vocations or activities pursued as of common right.” 301 U.S. at 580-1 (footnote omitted).

The argument that Congress can only tax “privileges” is also contradicted by the Supreme Court decisions that have held that the income tax applies to income from embezzlement and other illegal activities. See, for example, James v. United States, 366 U.S. 213 (1961). An activity is certainly not “privileged” if it is illegal.

And the courts have uniformly rejected the argument that the income tax must be based on a “privilege” or a “revenue taxable activity”:

“Turning first to their basic contention, indeed the one on which all the others rest, that the relation of domestic employment does not come within Art. 1, Section 8, and is therefore immune from the imposition of federal taxes and burdens, we find ourselves in no doubt that appellants are neither historically nor etymologically correct in their claim in substance that excises are limited to taxes laid on the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupation and upon corporate privileges only. It is true that taxes of the kind referred to are excise taxes but it is also true, as was held in Steward Machine Co. v. Davis, that the excises which Congress has power to impose are not limited to vocations or activities which may be prohibited altogether or to those which are the outcome of a franchise, but extend to vocations or activities pursued as of common right. The term ‘excise’ is and was before and at the time of the adoption of the Constitution a term of very wide meaning.”

Abney v. Campbell, 206 F.2d 836, 841 (5th Cir. 1953), cert. den. 346 U.S. 924 (1954).

“[Hamzik] contends only that he does not have a tax liability and subsequent deficiency because all federal income taxes are ‘indirect taxes’ and the Commissioner has not produced the statutes defining the ‘revenue taxable activity’ that would make Hamzik subject to or liable for any tax under Title 26. The tax court properly rejected Hamzik’s arguments as frivolous.”

Hamzik v. Commissioner, 25 Fed. Appx. 911, KTC 2001-589 (9th Cir. 2001), (affirming the decision of the Tax Court and imposing sanctions of $250 for bringing a frivolous appeal).

“Furthermore, Olson’s attempt to escape tax by deducting his wages as ‘cost of labor’ and by claiming that he had obtained no privilege from a governmental agency illustrate the frivolous nature of his position. This court has repeatedly rejected the argument that wages are not income as frivolous, [citations omitted] and has also rejected the idea that a person is liable for tax only if he benefits from a governmental privilege.”

Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985).

“All individuals, freeborn and nonfreeborn, natural and unnatural alike, must pay federal income tax on their wages, regardless of whether they have requested, obtained or exercised any privilege from the federal government.

United States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991), cert. den. 112 S.Ct. 940 (1992).

“Plaintiff appears to argue that according to the Sixteenth Amendment, federal income tax is not a direct tax on wages or salaries of individuals, but that it is an excise tax on the privilege of engaging in some privileged or regulated activity. Therefore, according to plaintiff, this ‘indirect excise tax’ can only be imposed on the income of corporations and the dividend income of stockholders. Despite plaintiff’s many case citations allegedly supporting his argument, the Sixteenth Amendment, valid as described above, clearly authorizes Congress to levy a direct income tax upon individuals who are United States citizens. In addition, as described above, plaintiff’s wages and gambling earnings are clearly within the I.R.C.’s definition of ‘income,’ and are properly subject to taxation.”

Betz v. United States, 40 Fed.Cl. 286, 294-296 (1998)

“The IRS is not required to show that the Debtor’s income is derived from a ‘revenue taxable activity.’”

In re: Michael Fleming, 86 AFTR2d ¶2000-5138; No. 97-6342-8G3 (U.S.Bank.Ct. M.D.Fl. 8/9/2000).

“[Peth] argues that he is not a “person liable” to pay taxes under 26 U.S.C. § 6001. The argument is this: the tax imposed by Title 26, according to plaintiff, is “not unapportioned direct tax,” because any such tax ‘would be in conflict with the apportionment restriction of direct taxes contained in [Article I of the Constitution].’ Moreover, he finds that there are no apportioned taxes imposed by Title 26. Thus, any tax under Title 26 must be an indirect tax, that is, a tax upon some right, privilege, or corporate franchise. Plaintiff says he is not a privileged person, nor has he taken any corporate franchise. Therefore, so the argument goes, Title 26 has no application to him. The argument has no merit.”

Peth v. Breitzmann, 611 F. Supp. 50, 53 (E.D.Wis. 1985), 1985 U.S. Dist. LEXIS 21509, 85-1 U.S.T.C. ¶9321, 55 AFTR2d 1280 (complaints dismissed and sanctions imposed for filing frivolous actions “brought in bad faith”).

“[P]etitioner argues that the income tax is an excise tax and that petitioner did not engage in any taxable excise activities during 1996, 1997, and 1998. The contentions made by petitioner in his petition and on brief are appropriately termed ‘tax protester rhetoric and legalistic gibberish’, and we shall not dignify such arguments with any further discussion.”

Heisey v. Commissioner, T.C. Memo. 2001-41 (tax deficiencies affirmed, along with penalties for failure to file and failure to pay estimated taxes, and an additional penalty of $2,000 was imposed for filing a frivolous petition), aff’d 2003 TNT 66-47, No. 02-72675 (9th Cir. 3/20/2003), ($1,500 penalty imposed for filing a frivolous appeal).

“Petitioner argues that the income tax is an excise tax and that he did not engage in excise taxable activities in 1996. [Note 3: “Petitioner testified: ‘The income tax is an excise tax. Congress, who sets the laws, even says so in the Congressional Record. The income tax is therefore not a tax on income.’”] We shall not painstakingly address petitioner’s assertions ‘with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.’ [Citation omitted.] Accordingly, we sustain respondent’s deficiency determination.”

Sawukaytis v. Commissioner, T.C. Memo. 2002-156 (sanctions of $12,500 imposed), aff’d 102 F.App’x 29, 2004-1 USTC ¶50,283, KTC 2004-186, Docket No. 02-2431 (6th Cir. 6/16/2004), (additional sanctions of $4,000 imposed for filing a frivolous appeal; the original tax in controversy was $13,976, plus a failure to file penalty of $726, so the total of the sanctions imposed by the Tax Court and Circuit Court exceeded the original amount in controversy), rehearing den. 8/6/2004, cert. den. No. 04-587 (12/6/2004).

In Pabon v. Commissioner, T.C. Memo 1994-476, the petitioner alleged, among other things, that he “is not an employee of the Federal or state governments, is not engaged in a revenue taxable activity of alcohol, tobacco or firearms and therefore not subject to any exise [sic] tax....” The court concluded that the petition “is nothing but tax protester rhetoric and legalistic gibberish....” Pabon v. Commissioner, T.C. Memo 1994-476.

See also, Parker v. Commissioner, 724 F.2d 469, 84-1 US Tax Cas ¶9209 (5th Cir.), aff’ng T.C. Memo 1983-75 (the Sixteenth Amendment empowered Congress to levy income tax against any source of income, without any need to classify it as excise tax applicable to specific categories of activities); Bell Consumers, Inc. v. Lay, 203 F. Supp. 2d 1202, 1208 (W.D. Wash. 2002) (allegation that “the sections of the Internal Revenue Code governing assessments, liens and levies apply only to excise tax upon unmanufactured cotton and distilled spirits and other special (occupational) tax” was “frivolous and without merit”).

The claim that “[o]nly certain types of income are taxable, for example, income that results from the sale of alcohol, tobacco, or firearms or from transactions or activities that take place in interstate commerce” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Tax Protester “Evidence”

To try to support their nonsense, tax protesters frequently try to rely on the following quotation:

“The income tax is, therefore, not a tax on income as such. It is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce. The income is not the subject of the tax: it is the basis for determining the amount of the tax.”

Congressional Record of 3/27/1943, page 2580.

Although this language appears in the Congressional Record, it is not a quotation from any Senator or Representative, but from a paper written by a lawyer named F. Morse Hubbard, who was formerly an employee of the Treasury Department. It is not clear whether any Senator or Representative agreed with Hubbard, or relied on his opinion.

Hubbard’s opinion in 1943 (30 years after the ratification of the 16th Amendment and the enactment of the first income tax under that amendment) about the nature of the income tax is flatly contradicted by a statement in 1913 by one of original authors of the income tax:

“Under the proposed measure income is both the subject and the measure of the tax.”

Representative Cordell Hull, Cong. Rec. (8/5/1913) (reprinted in Foster’s Income Tax.)

Cordell Hull (1871-1955) was a recognized expert in tax, commercial, and fiscal policies, and would have known what he was talking about. He served in Congress from 1907 to 1931 and served on the House Ways and Means Committee for eighteen years, where he was one of the principal authors of the income tax provisions of the 1913 Tariff Act, along with the Revised Act of 1916, and the federal estate tax that was enacted in 1916. (He was also elected as a U.S. Senator in 1931, but resigned in 1933 when President Franklin D. Roosevelt appointed him to serve as Secretary of State, a position he held for 12 years, which is the longest term in U.S. History.)

That Hubbard was wrong in his 1943 opinion is clear from the following footnote to the paragraph quoted above:

“If the tax should be construed as a tax on income as a specific fund the disappearance of the fund before the date of assessment would prevent the collection of the tax. (See Foster and Abbott, op. cit., p. 85.)”

Memorandum, note 4.

Hubbard seems to have been laboring under the misconception that, if Congress imposed a tax “on” income, and if the taxpayer spent the income before Congress could collect the tax, then Congress would be unable to collect the tax at all. But that is nonsense. As noted elsewhere, it is perfectly clear that the taxpayer who earns the income is personally liable for the tax, and I.R.C. section 6321 even imposes a lien for the amount of any tax that is assessed and unpaid on all of the property of the taxpayer, not just the income itself. So Hubbard’s semantic hair-splitting was completely unnecessary.

Hubbard also clearly believed that a tax measured by income would be an “income tax,” stating (for example) that the Corporate Tax Act of 1909 “was really an income tax.” But the Supreme Court flatly disagreed:

“As repeatedly pointed out by this court, the corporation tax law of 1909 ... imposed an excise or privilege tax, and not in any sense a tax upon property or upon income merely as income.”

U.S. v. Whitridge, 231 U.S. 144, 147 (1913).

“As has been repeatedly remarked, the corporation tax act of 1909 was not intended to be and is not, in any proper sense, an income tax law.”

Stratton’s Independence Ltd. v. Howbert, 231 U.S. 399, 414 (1913).

“As has been repeatedly pointed out by this court in previous cases [citations omitted] the act of 1909 was not in any proper sense an income tax law, nor intended as such, but was an excise upon the conduct of business in a corporate capacity, the tax being measured by reference to the income in a manner prescribed by the act itself.”

Anderson v. Forty-Two Broadway Co., 239 U.S. 69, (1915).

So Hubbard was wrong about the Corporate Tax Act of 1909 being an “income tax.” What about the idea that the income taxes enacted following the ratification of the 16th Amendment are not taxes “on” income but taxes on “certain activities and privileges”? The Internal Revenue Code does not identify any “activity or privilege” being taxed other than the receipt of the income itself. And the Supreme Court has confirmed that it is the realization (or receipt) of income that creates a tax liability:

“From the beginning the revenue laws have been interpreted as defining ‘realization’ of income as the taxable event rather than the acquisition of the right to receive it.”

Helvering v. Horst, 311 U.S. 112, 115 (1940).

To summarize, Hubbard’s characterization of the income tax is based on a faulty premise, is contradicted by one of the authors of the first income tax, and is inconsistent with the opinions of the Supreme Court. There is no getting around the fact that Hubbard was simply wrong.

Tax protesters also frequently rely on the following quote:

“Realizing and receiving income or earnings is not a privilege that can be taxed.”

Jack Cole Company v. MacFarland, 206 Tenn. 694, 337 S.W.2d 453 (1960).

However, that is not a federal court opinion, but a decision of the Tennessee Supreme Court interpreting the word “privileges” as used in the Tennessee Constitution. The Tennessee Constitution does not give its legislature a general power to impose taxes, but allows for taxes on the value of property (“ad valorem” taxes) and the following additional taxes:

“The Legislature shall have power to tax merchants, peddlers, and privileges, in such manner as they may from time to time direct, and the Legislature may levy a gross receipts tax on merchants and businesses in lieu of ad valorem taxes on the inventories of merchandise held by such merchants and businesses for sale or exchange. … The Legislature shall have power to levy a tax upon incomes derived from stocks and bonds that are not taxed ad valorem.”

Tennessee Constitution, Article II, Section 28.

In ruling that a general income tax was outside of the power of the legislature, the Tennessee Supreme Court applied a narrow meaning to the word “privileges” as used in its Constitution, but that opinion has nothing to do with the scope of the 16th Amendment, which refers to taxes on “incomes” without any mention of “privileges.”

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Congress can only tax income arising out of activities that Congress can regulate, such as alcohol, tobacco, or firearms, or from interstate commerce.

Like the claim that Congress can only tax residents of the District of Columbia and other “federal areas,” this claim is based on the mistaken belief that the Congressional power of taxation is somehow limited by the other powers granted to Congress, so that Congress can only tax what it can regulate, which is nonsense.

The argument that Congress cannot tax something that it cannot regulate was expressly raised (and rejected) in 1866 in the License Tax Cases, 72 U.S. 462, 5 Wall. 462 (1866). In that case, the Supreme Court was asked to consider the validity of a “special tax” imposed by Congress in the form of a fee for a “license” to sell lottery tickets and liquor, activities that were already illegal in several states. In describing the the extensive power of taxation given to Congress by the Constitution, the Supreme Court stated:

“It is true that the power of Congress to tax is a very extensive power. It is given in the Constitution with only one exception and only two qualifications. Congress cannot tax exports, and it must impose direct taxes by the rule of apportionment and indirect taxes by the rule of uniformity. Thus, limited, and thus only, it reaches every subject, and may be exercised at discretion.”

License Tax Cases, 72 U.S. 462, 471 (1866).

The court agreed that Congress could not prohibit or regulate the activities that were being taxed, and also agreed that the “license” granted by the payment of the federal tax did not authorize anyone to do anything that was prohibited by state law, concluding that Congress could nevertheless impose a tax on activities that were regulated or prohibited by the states:

“[T]he recognition by the acts of Congress of the power and right of the States to tax, control, or regulate any business carried on within its limits, is entirely consistent with an intention on the part of Congress to tax such business for National purposes.”

License Tax Cases, 72 U.S. 462, 475 (1866).

So it is quite clear that Congress can tax activities regardless of whether it can regulate them.

As far as taxes on alcohol, tobacco, and firearms are concerned, there is nothing in the Constitution that gives Congress any power to regulate or restrict the manufacture or sale of those items. In fact, the 18th Amendment (the Prohibition amendment) was proposed and ratified because it was believed that Congress could not by statute prohibit the manufacture or sale of alcohol within the states. (Decisions expanding the scope of Congressional power under the interstate commerce clause would probably allow Congress to regulate alcohol today, but that’s a different story.) The argument that Congress can tax alcohol because it can regulate it seems to flow backwards from the tax protesters’ understanding that taxes on alcohol have existed since Colonial days, and a tax on distilled spirits was one of the first taxes enacted by Congress. (Although it was not without its critics. Consider the Whiskey Rebellion of 1794.) Tax protesters therefore assume that, since Congress can tax it, Congress has the power to regulate it, which is completely wrong. Congress can tax anything (except exports), but its powers of regulation are limited to those matters listed in Article I, section 8 of the Constitution (the most important of which is interstate commerce and things affecting interstate commerce).

And so the paradox is that, in order to claim that Congress does not have a power it clearly has (the power to tax incomes), tax protesters concede to Congress powers which it does not have (the powers to regulate alcohol, tobacco, and firearms outside of a regulation of interstate commerce).

And so the courts have uniformly rejected the argument that the income tax is limited to alcohol, tobacco, firearms, or interstate commerce:

“Plaintiff appears to argue that according to the Sixteenth Amendment, federal income tax is not a direct tax on wages or salaries of individuals, but that it is an excise tax on the privilege of engaging in some privileged or regulated activity. Therefore, according to plaintiff, this ‘indirect excise tax’ can only be imposed on the income of corporations and the dividend income of stockholders. Despite plaintiff’ many case citations allegedly supporting his argument, the Sixteenth Amendment, valid as described above, clearly authorizes Congress to levy a direct income tax upon individuals who are United States citizens. In addition, as described above, plaintiff’ wages and gambling earnings are clearly within the I.R.C.’ definition of ‘income,’ and are properly subject to taxation.”

Betz v. United States, 40 Fed.Cl. 286, 294-296 (1998).

In Pabon v. Commissioner, T.C. Memo 1994-476, the petitioner alleged, among other things, that he “is not an employee of the Federal or state governments, is not engaged in a revenue taxable activity of alcohol, tobacco or firearms and therefore not subject to any exise [sic] tax....” The court concluded that the petition “is nothing but tax protester rhetoric and legalistic gibberish....”

In Brian G. Takaba v. Commissioner, 119 T.C. 285, 2002 TNT 242-11 (12/16/2002), the attorney for the taxpayer stated to the court that “the Internal Revenue Code does not reach intrastate income” and “I can’t find a constitutional power of Congress to tax that [intrastate] income.” The court imposed sanctions of $10,500 on the attorney, finding that the arguments were “frivolous,” that the attorney “knew those arguments were frivolous but, in order to gain a tactical advantage, did not disclaim them,” and that the attorney “knowingly maintained petitioner’s frivolous arguments, and that constitutes bad faith.”

The claim that “[o]nly certain types of income are taxable, for example, income that results from the sale of alcohol, tobacco, or firearms or from transactions or activities that take place in interstate commerce” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Tax Protester “Evidence”

In attempting to claim that Congress cannot tax that which it cannot regulate, tax protesters often take quotations taken out of context from cases in which the Supreme Court has struck down a tax because it was quite clear that the “tax” was not meant to generate revenue, but to punish some behavior that Congress did not like and had no power to regulate directly. From this, the tax protester leaps to the conclusion that Congress can only impose taxes on activities that it can regulate, which is completely wrong.

For example, tax protesters frequently cite the decision of the Supreme Court in Bailey v. Drexel Furniture Co., 259 U.S. 20 (1922), but that case was very unusual and is no longer good law. The Supreme Court held that the “tax” in question was not a really a tax at all, but a penalty that was enacted in order to try to regulate something that the Supreme Court had held Congress could not regulate (child labor) in Hammer v. Dagenhart, 247 U.S. 251 (1918). However, the Supreme Court later reversed itself, specifically overruling the Dagenhart decision in U.S. v. Darby, 312 U.S. 100 (1941), which upheld the constitutionality of the Fair Labor Standards Act. So the Drexel Furniture decision rested on a since-discredited limitation on the Congressional power to regulate interstate commerce.

The Drexel Furniture decision also rested on an overly-restrictive view of the Congressional power to tax. In the years since that decision, the Supreme Court has been very reluctant to strike down any tax as “regulatory.” For example:

“Every tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed. But a tax is not any the less a tax because it has a regulatory effect, [Citations omitted] and it has long been established that an Act of Congress which on its face purports to be an exercise of the taxing power is not any the less so because the tax is burdensome or tends to restrict or suppress the thing taxed.”

Sonzinsky v. United States, 300 U.S. 506 (1937), (affirming constitutionality of tax on intrastate firearm sales.). See also, U.S. v. Sanchez, 340 U.S. 42 (1950) (taxing intrastate marijuana transactions); U.S. v. Kahriger, 345 U.S. 22 (1953) (taxing intrastate wagering).

Another case that tax protesters sometimes cite is William E. Peck & Co. v. Lowe, 247 U.S. 165, 173 (1918), which contains a “dictum” (Latin for “word”) that tax protesters find significant. The issue before the court was whether the clause in the Constitution prohibiting any tax on exports from any state (Article I, section 9, clause 5) also prohibited a tax on income earned from exports. In framing that issue, the court wrote:

“The Constitution broadly empowers Congress not only ‘to lay and collect taxes, duties, imposts, and excises,’ but also ‘to regulate commerce with foreign nations.’ So, if the prohibitory clause invoked by the plaintiff be not in the way, Congress undoubtedly has power to lay and collect such a tax as is here in question.”

William E. Peck & Co. v. Lowe, 247 U.S. 165, 173 (1918).

Many tax protesters believe that the words “but also ‘to regulate commerce with foreign nations’” imply that Congress cannot tax what it cannot regulate, but if the court thought that then the court was silently over-ruling the License Tax Cases, 72 U.S. 462 (1866), which (as explained above) specifically held that Congress can tax activities that it cannot regulate.

Exactly why the court included those words in the opinion is not clear, because the opinion never says anything else about the power to regulate foreign commerce, and the words seem to be completely irrelevant to the issue before the court. However, regardless of why the words appear in the opinion, no court has ever held that Congress cannot tax income from activities that Congress has no power to regulate.

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The income tax cannot apply to individual citizens because Congress has power only over states and not over individual citizens.

Some tax protesters go so far as to claim that the federal government has no power whatsoever over individual citizens, and can operate only through the state governments, so all “direct taxes” must be apportioned among the states and collected from the states, and not from individual citizens. This claim is ridiculous because it is completely inconsistent with the plain language and intent of the Constitution.

Under the Articles of Confederation that were in effect among the original thirteen states from independence through the ratification of the Constitution in 1790, Congress did indeed have no power to enact laws affected individuals, but only to requisition money from the states and conduct foreign affairs. And it didn’t work. The whole purpose of the Constitution was to create a national government with national powers, as has been recognized by the Supreme Court on several occasions:

“The General Government, administered by the Congress of the Confederation, had been reduced to the verge of impotency by the necessity of relying for revenue upon requisitions on the States, and it was a leading object in the adoption of the Constitution to relieve the government, to be organized under it, from this necessity, and confer upon it ample power to provide revenue by the taxation of persons and property.”

Veazie Bank v. Fenno, 75 U.S. 533, 540 (1869).

“Both the States and the United States existed before the Constitution. The people, through that instrument, established a more perfect union, by substituting a National government, acting with ample powers directly upon the citizens, instead of the Confederate government, which acted with powers greatly restricted, only upon the States.”

Lane County v. Oregon, 74 U.S. 71, 76 (1869) (emphasis added).

“In the end, the [Constitutional] Convention opted for a Constitution in which Congress would exercise its legislative authority directly over individuals, rather than over States.... The Framers explicitly chose a Constitution that confers upon Congress the power to regulate individuals, not States.”

New York v. United States, 505 U. S. 144, 165-166 (1992).

“[T]he Framers rejected the concept of a central government that would act upon and through the States, and instead designed a system in which the state and federal governments would exercise concurrent authority over the people--who were, in Hamilton’ words, ‘the only proper objects of government.’”

Printz v. United States, 521 U.S. 898 (1997).

The Supreme Court has therefore upheld the imposition of taxes against individuals on several occasions.

In Hylton v. United States, 3 U.S. 171 (1796), the Supreme Court was unanimous in its opinion that Congress could impose a tax on a citizen of Virginia for carriages held for personal use. Of the four justices who heard the case, two (William Paterson and James Wilson) were members of the Constitutional Convention that drafted the Constitution, and presumably knew what it meant.

Since the Hylton decision, no judge in the history of the United States has ever suggested that the federal government cannot impose a tax on individual citizens. In 1830, Chief Justice Marshall wrote:

“The power of legislation, and consequently of taxation, operates on all the persons and property belonging to the body politic.”

Providence Bank v. Billings, 29 U.S. 514, 563 (1830).

In Springer v. United States, 102 U.S. 586 (1880), the Supreme Court upheld the constitutionality of an income tax against an individual, William H. Springer, finding that the income tax was a constitutional “duty or excise.”

In Tyee Realty Co. v. Anderson, 240 U.S. 115, 117 (1916), one of the appellants was an individual named Edwin Thorne, and he complained about the constitutionality of “a progressive tax on the income of individuals.” The Supreme Court denied the appeal saying that “we need not now enter into an original consideration of the merits of these contentions because each and all of them were considered and adversely disposed of in Brushaber v. Union P. R. Co., 240 U.S. 1, 60 L.Ed. __, 36 Sup. Ct. Rep. 236.”

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Income cannot be taxed unless the source of the income is first determined.

This argument turns the 16th Amendment on its head, making the determination of sources of income a requirement instead of an irrelevancy, and also twists and distorts the meaning of “whatever source” in the 16th Amendment.

The 16th Amendment was proposed and ratified in order to eliminate the distinction between income from property and other kinds of income (including income from labor) that had been created by the decisions in Pollock v. Farmers’ Loan and Trust Co., 157 U.S. 429 (1894), on rehearing, 158 U.S. 601 (1895). As the Supreme Court noted in the Brushaber decision:

“[T]he command of the Amendment [is] that all income taxes shall not be subject to apportionment by a consideration of the sources from which the taxed income may be derived....” Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).

Demanding that the source of the income be identified before the income can be taxed is therefore contrary to the whole purpose of the 16th Amendment.

And, although the issue before the court was statutory, and not constitutional, it is still noteworthy that, according to the Supreme Court:

“Congress applied no limitations as to the source of taxable receipts, nor restrictive labels as to their nature. And the Court has given a liberal construction to this broad phraseology in recognition of the intention of Congress to tax all gains except those specifically exempted.”

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430-431 (1955).

The argument that the Constitution requires that all taxable income have a “source” also ignores the word “whatever” in the phrase “from whatever source derived” which appears in both the 16th Amendment and section 61 of the Internal Revenue Code. The word “whatever” means “of any number or kind,” or “of any kind at all.” If income can be taxed from “any kind of” source, then there is no need to identify the source before taxing the income.

Only a few court decisions have been found that mention this exact argument:

“According to Buras, income must be derived from some source. ... [T]he Sixteenth Amendment is broad enough to grant Congress the power to collect an income tax regardless of the source of the taxpayer’ income.”

United States v. Buras, 633 F.2d 1356, 1361 (9th Cir. 1980).

“[Condo] asserts that the sixteenth amendment only allows taxing income from ‘sources’ (entities and monopolies created by law), not persons. The sixteenth amendment authorization, however, is for a tax on income from whatever source derived.”

United States v. Condo, 741 F2d 238, 239 (9th Cir. 1984), cert. denied, 469 U.S. 1164 (1985).

“[A]ppellant suggests that before an ‘item’ of income may be considered, the particular ‘source’ of the ‘item’ must be identified. ... He is wrong. By the terms of both the Sixteenth Amendment and section 61(a), ‘source’ is not to be a limitation on taxable income. Rather, income is to be taxed regardless of its source.”

Angstadt v. Internal Revenue Service, 84 AFTR2d 99-5455, 1999 WL 820866, at 2 (U.S.D.C. E.D.Pa. 1999).

Consistent with the foregoing, it is well established that the Internal Revenue Service can assess an income tax deficiency against a taxpayer on the basis of an increase in net worth, the increase in net worth being evidence of income received by the taxpayer. In many cases it may be impossible for the IRS to ascertain the source of the unreported income, but the determination of the source is not always necessary. When the IRS uses the net worth method to determine whether a taxpayer has underreported income, the IRS must either (1) establish a likely source of unreported taxable income or (2) conduct a reasonable investigation of leads negating possible sources of nontaxable income. United States v. Massei, 355 U.S. 595 (1958); Mazoli v. Commissioner, 904 F.2d 101 (1st Cir. 1990), aff’g T.C. Memo 1989-94 and T.C. Memo. 1988-299; DiLeo v. Commissioner, 959 F.2d 16 (2d Cir. 1992), aff’g 96 T.C. 858 (1991); Goe v. Commissioner, 198 F.2d 851 (3rd Cir. 1952), cert. den. 344 U.S. 897 (1952); Armes v. Commissioner, 448 F.2d 972 (5th Cir. 1971), aff’g in part and rev’g in part T.C. Memo. 1969-181; Smith v. Commissioner, 91 T.C. 1049 (1988) aff’d 926 F.2d 1470 (6th Cir. 1991); Kramer v. Commissioner, 389 F.2d 236 (7th Cir. 1968), aff’g T.C. Memo. 1966-234. It has therefore been held that deposits in a taxpayer’ bank account are prima facie evidence of income, and the taxpayer bears the burden of showing that the deposits were not income subject to tax. See Calhoun v. United States, 591 F.2d 1243, 1245 (9th Cir. 1978); and Welch v. Commissioner, 204 F.3d 1228, 2000 U.S. App. LEXIS 2961, 2000-1 U.S. Tax Cas. 50,258, 85 AFTR2d 2000-497 (9th Cir. 3/1/2000), aff’g T.C. Memo 1998-121.

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The 16th Amendment is ineffective because it does not expressly repeal any provision of Article I of the Constitution.

There is nothing in the Constitution that says that an amendment must specifically repeal another provision of the Constitution. In fact, there are 27 amendments to the Constitution, and only one of them specifically repeals an earlier provision. (The 21st Amendment, which ended Prohibition, specifically repeals the 18th Amendment, which started Prohibition.)

If this argument were correct, then the losing presidential candidate would be the vice-president of the United States, because the 12th Amendment did not expressly repeal Article II, Section 1, clause 3 of the Constitution. And Senators would still be selected by state legislatures, because the 17th Amendment did not expressly repeal any part of Article I, section 3, of the Constitution.

No court decision has been found that specifically addresses this particular piece of nonsense.

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The 16th Amendment gave Congress no new power to tax.

This statement is taken from language in the opinions of the United States Supreme Court in the Brushaber and Stanton cases and, unlike most other tax protester nonsense, it is actually true. The problem is not that the statement is false, but that it doesn’t mean what tax protesters think it means and it doesn’t lead to the conclusion that tax protesters want to reach.

Tax protesters believe that, before the adoption of the 16th Amendment, a tax on incomes was unconstitutional and therefore outside the power of Congress. This is not correct because, as explained above, it was clear even before the 16th Amendment that Congress could tax wages and earnings from employment, as well as income from business operations. By incorrectly asserting that a tax on incomes was unconstitutional before the 16th Amendment, and then asserting that the 16th Amendment gave Congress no new power to tax, tax protesters reach the incorrect conclusion that a tax on incomes must be unconstitutional even after the adoption of the 16th Amendment, which is ridiculous.

It is ridiculous because it would mean that the 16th Amendment does not mean what it says. The amendment plainly states that “The Congress shall have the power to tax incomes” and tax protesters nevertheless try to claim that Congress does not have the power to tax incomes.

It is also ridiculous because it would mean that Congress proposed a constitutional amendment, and the states ratified a constitutional amendment, that changed nothing and has no meaning.

To understand the statement of the Supreme Court when it said that the 16th Amendment created “no new power,” you have to understand the context in which the statement was made. One of the claims made by the taxpayer in the Brushaber case was that the 16th Amendment was “repugnant to the constitution” because it created a form of tax that was neither apportioned (as required for “direct” taxes by Article I, Section 9) nor uniform (as required for “excises” by Article I, Section 8, Clause 1). The court referred to the conclusion “that the 16th Amendment provides for a hitherto unknown power of taxation; that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes,” as an “erroneous assumption.”

“[T]he contention that the Amendment treats a tax on income as a direct tax although it is relieved from apportionment and is necessarily therefore not subject to the rule of uniformity as such rule only applies to taxes which are not direct, thus destroying the two great classifications which have been recognized and enforced from the beginning, is also wholly without foundation since the command of the Amendment that all income taxes shall not be subject to apportionment by a consideration of the sources from which the taxed income may be derived forbids the application to such taxes of the rule applied in the Pollock Case by which alone such taxes were removed from the great class of excises, duties, and imposts subject to the rule of uniformity, and were placed under the other or direct class.”

Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).

This statement was confirmed and explained by the Supreme Court in Stanton v. Baltic Mining Co., 240 U.S. 103 (1916), in which the court stated that “by the previous ruling [in Brushaber] it was settled that the provisions of the 16th Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of INDIRECT taxation to which it inherently belonged, and being placed in the category of direct taxation....”

Therefore, the power to tax incomes without apportionment is not a new kind of power, but just a different classification of the “previous complete and plenary power of income taxation,” taking it out of the category of direct taxation and placing it back in the category of indirect taxation “to which it inherently belonged.” By saying that the 16th Amendment created “no new power,” tax protesters completely disregard the rest of what the Supreme Court said in the same sentence.

Similarly:

“The Sixteenth Amendment declares that Congress shall have power to levy and collect taxes on income, ‘from whatever source derived’ without apportionment among the several states, and without regard to any census or enumeration. It was not the purpose or the effect of that amendment to bring any new subject within the taxing power. Congress already had the power to tax all incomes. But taxes on incomes from some sources had been held to be ‘direct taxes’ within the meaning of the constitutional requirement as to apportionment. [cites omitted] The Amendment relieved from that requirement and obliterated the distinction in that respect between taxes on income that are direct taxes and those that are not, and so put on the same basis all incomes ‘from whatever source derived.’”

Bowers, Collector v. Kerbaugh-Empire Co., 271 U.S. 170, 173-174 (1926).

The Supreme Court has never stated that the 16th Amendment gave Congress “no new power” without also affirming that Congress already had the power to tax incomes even before the 16th Amendment.

(As noted above, some circuit courts refer to the income tax as a “direct non-apportioned tax” despite the explanations in the Brushaber and Stanton decisions. Regardless of the confusion in terminology, the courts are unanimous that the income tax is constitutional under the 16th Amendment.)

The claim that “[t]he Sixteenth Amendment was not ratified, has no effect, contradicts the Constitution as originally ratified, lacks an enabling clause, or does not authorize a non-apportioned, direct income tax” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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The 16th Amendment was not properly ratified.

Although the Constitution describes how to ratify amendments, it doesn’t say who is supposed to keep track of the ratification process and let us know when the required three-fourths of the states have ratified an amendment. After some confusion about the status of some amendments (including the infamous “Titles of Nobility” amendment that fell at least one state short of ratification, but appeared in numerous copies of the Constitution in the early and middle 1800s), Congress decided that the Secretary of State should certify what amendments have been ratified. Congress proposed the 16th Amendment on July 12, 1909, and, on February 3, 1913, Secretary of State Philander Knox certified that it had been ratified.

According to the Office of the Law Revision Counsel of the U. S. House of Representatives, the dates of ratification by the states were (chronologically): Alabama, August 10, 1909; Kentucky, February 8, 1910; South Carolina, February 19, 1910; Illinois, March 1, 1910; Mississippi, March 7, 1910; Oklahoma, March 10, 1910; Maryland, April 8, 1910; Georgia, August 3, 1910; Texas, August 16, 1910; Ohio, January 19, 1911; Idaho, January 20, 1911; Oregon, January 23, 1911; Washington, January 26, 1911; Montana, January 30, 1911; Indiana, January 30, 1911; California, January 31, 1911; Nevada, January 31, 1911; South Dakota, February 3, 1911; Nebraska, February 9, 1911; North Carolina, February 11, 1911; Colorado, February 15, 1911; North Dakota, February 17, 1911; Kansas, February 18, 1911; Michigan, February 23, 1911; Iowa, February 24, 1911; Missouri, March 16, 1911; Maine, March 31, 1911; Tennessee, April 7, 1911; Arkansas, April 22, 1911 (after having rejected it earlier); Wisconsin, May 26, 1911; New York, July 12, 1911; Arizona, April 6, 1912; Minnesota, June 11, 1912; Louisiana, June 28, 1912; West Virginia, January 31, 1913; New Mexico, February 3, 1913. The amendment was subsequently ratified by Massachusetts, March 4, 1913; New Hampshire, March 7, 1913 (after having rejected it on March 2, 1911). The amendment was rejected (and not subsequently ratified) by Connecticut, Rhode Island, and Utah.

The argument that the 16th Amendment was not ratified is best explained (and refuted) by this quotation from U.S. v. Thomas, 788 F.2d 1250 (7th Cir. 1986), cert. den. 107 S.Ct. 187 (1986):

“Thomas is a tax protester, and one of his arguments is that he did not need to file tax returns because the sixteenth amendment is not part of the constitution. It was not properly ratified, Thomas insists, repeating the argument of W. Benson & M. Beckman, The Law That Never Was (1985). Benson and Beckman review the documents concerning the states’ ratification of the sixteenth amendment and conclude that only four states ratified the sixteenth amendment; they insist that the official promulgation of that amendment by Secretary of State Knox in 1913 is therefore void.

“Benson and Beckman did not discover anything; they rediscovered something that Secretary Knox considered in 1913. Thirty-eight states ratified the sixteenth amendment, and thirty-seven sent formal instruments of ratification to the Secretary of State. (Minnesota notified the Secretary orally, and additional states ratified later; we consider only those Secretary Knox considered.) Only four instruments repeat the language of the sixteenth amendment exactly as Congress approved it. The others contain errors of diction, capitalization, punctuation, and spelling. The text Congress transmitted to the states was: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” Many of the instruments neglected to capitalize “States,” and some capitalized other words instead. The instrument from Illinois had “remuneration” in place of “enumeration”; the instrument from Missouri substituted “levy” for “lay”; the instrument from Washington had “income” not “incomes”; others made similar blunders.

“Thomas insists that because the states did not approve exactly the same text, the amendment did not go into effect. Secretary Knox considered this argument. The Solicitor of the Department of State drew up a list of the errors in the instruments and--taking into account both the triviality of the deviations and the treatment of earlier amendments that had experienced more substantial problems--advised the Secretary that he was authorized to declare the amendment adopted. The Secretary did so.

“Although Thomas urges us to take the view of several state courts that only agreement on the literal text may make a legal document effective, the Supreme Court follows the “enrolled bill rule.” If a legislative document is authenticated in regular form by the appropriate officials, the court treats that document as properly adopted. Field v. Clark, 143 U.S. 649, 36 L.Ed. 294, 12 S.Ct. 495 (1892). The principle is equally applicable to constitutional amendments. See Leser v. Garnett, 258 U.S. 130, 66 L.Ed. 505, 42 S.Ct. 217 (1922), which treats as conclusive the declaration of the Secretary of State that the nineteenth amendment had been adopted. In United States v. Foster, 789 F.2d. 457, 462-463, n.6 (7th Cir. 1986), we relied on Leser, as well as the inconsequential nature of the objections in the face of the 73-year acceptance of the effectiveness of the sixteenth amendment, to reject a claim similar to Thomas’. See also Coleman v. Miller, 307 U.S. 433, 83 L. Ed. 1385, 59 S. Ct. 972 (1939) (questions about ratification of amendments may be nonjusticiable). Secretary Knox declared that enough states had ratified the sixteenth amendment. The Secretary’ decision is not transparently defective. We need not decide when, if ever, such a decision may be reviewed in order to know that Secretary Knox’ decision is now beyond review.”

U.S. v. Thomas, 788 F.2d 1250 (7th Cir. 1986), cert. den. 107 S.Ct. 187 (1986).

It has also been claimed that the votes of Georgia legislature were recorded incorrectly and that Georgia actually rejected the amendment, contrary to Knox’ report. However, no Congressman or other official from Georgia has ever complained about the “error” and, even if there was an error and Georgia did not ratify the amendment, there would still have been thirty-seven ratifications, one more than the thirty-six required. (Article V of the Constitution requires that amendments to the Constitution be approved by the legislatures of three fourths of the states, and there were forty-eight states in 1913.)

Another claim is that the ratification of the 16th Amendment by several states was invalid because the constitutions of those states prohibited an income tax. A similar argument as to the 19th Amendment has been flatly rejected by the U.S. Supreme Court in connection with a different constitutional amendment:

“The second contention is that in the Constitutions of several of the 36 states named in the proclamation of the Secretary of State there are provisions which render inoperative the alleged ratifications by their Legislatures. The argument is that by reason of these specific provisions the Legislatures were without power to ratify. But the function of a state Legislature in ratifying a proposed amendment to the federal Constitution, like the function of Congress in proposing the amendment, is a federal function derived from the federal Constitution; and it transcends any limitations sought to be imposed by the people of a state.”

Leser v. Garnett, 258 U.S. 130, 136-137 (1922).

These technical arguments against the ratification of the 16th Amendment are troubling because they are so undemocratic (as are many other tax protester arguments). Except for a couple of claims about the votes of two states, there is really no doubt that Congress proposed an amendment that would give it the power to tax incomes, and that three fourths of the states approved the amendment. But tax protesters would like for the courts to nullify the amendment, and so nullify the power of Congress and the states to amend the Constitution, and so deny to the people the power to govern themselves, because of typographical errors.

But can courts even consider attacks on the validity of constitutional amendments? As noted by the 7th Circuit in Thomas, the argument that the 16th Amendment is invalid is not only legally and factually wrong, but it is an argument that federal courts are unable (or at least reluctant) to consider. The federal courts have always recognized limits upon their powers, and one of those limits is that the courts should not get involved in issues that the Constitution has entrusted to other branches of the government. The Constitution says that Congress may propose amendments, and the states may ratify them. Whether an amendment has been properly ratified is considered to be a “political question” to be resolved by Congress and the states, and not in court. In a challenge to the validity of the 19th Amendment, the Supreme Court ruled that official notices of the state legislatures to the Secretary of State were “binding upon him, and, being certified by his proclamation, is conclusive upon the courts.” Leser v. Garnett, 258 U.S. 130, 137 (1922).

Other decisions confirming (or refusing to consider) the validity of the 16th Amendment:

“Despite plaintiff’ and numerous other tax protesters’ contention that the Sixteenth Amendment was never ratified, courts have long recognized the Sixteenth Amendment’ ratification and validity.”

Betz v. United States, 40 Fed.Cl. 286, 295 (1998).

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: .. .. (4) the Sixteenth Amendment to the Constitution is either invalid or applies only to corporations . . . .”

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

See also, United States v. Foster, 789 F.2d 457 (7th Cir. 1986), cert. den. 107 S.Ct. 273; Pollard v. Commissioner, 816 F.2d 603 (11th Cir. 1987); United States v. Benson, 941 F.2d 598 (7th Cir. 1991); Sochia v. Commissioner, 23 F.3d 941 (5th Cir. 1994), reh. den. 1994 U.S. App. LEXIS 22014; United States v. Stahl, 792 F.2d 1438 (9th Cir. 1986), cert. den. 107 S.Ct. 888; United State v. Sitka, 845 F.2d 43 (2nd Cir. 1988); Miller v. United States, 868 F.2d 236, 239-41 (7th Cir. 1989); Biermann v. Commissioner, 769 F.2d 707 (11th Cir. 1985); United States v. Buckner, 830 F.2d 102 (1987); United States v. Dube, 820 F.2d 886, 891 (7th Cir. 1986); Coleman v. Commissioner, 791 F.2d 68, 70-71 (7th Cir. 1986); United States v. Moore, 627 F.2d 830, 833 (7th Cir. 1980); Knoblauch v. Commissioner, 749 F.2d 200, 201 (1984) (“Every court that has considered this argument has rejected it.”), cert. den. 474 U.S. 830 (1985); United States v. Matheson, (9th Cir. 1986); Lysiak v. Commissioner, 816 F.2d 311, 312 (7th Cir. 1987); Quijano v. United States, 93 F.3d 26, 30 (1st Cir. 1996); United States v. Mundt, 29 F.3d 233, 237 (6th Cir. 1994).

In Rev. Rul. 2005-19, 2005-14 I.R.B. 819, the IRS confirmed that the argument that the 16th Amendment was never properly ratified is “frivolous” and reliance on it can result in civil and criminal penalties.

The claim that “[t]he Sixteenth Amendment was not ratified, has no effect, contradicts the Constitution as originally ratified, lacks an enabling clause, or does not authorize a non-apportioned, direct income tax” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Tax Protester “Evidence”

A related (and even sillier) claim made by tax protesters is that the ratification of the 16th Amendment by Ohio was invalid because Ohio did not become a state until 1953(!). This strange claim is based on a strange action that Congress took in 1953 to confirm that Ohio was indeed a state. Briefly:

  1. By an act of April 30, 1802 (2 Stat. 173), section 1, Congress provided that “the inhabitants of the eastern division of the territory northwest of the river Ohio, be, and they are hereby authorized to form for themselves a constitution and state government, and to assume such name as they shall deem proper, and the said state, when formed, shall be admitted into the Union, upon the same footing with the original states, in all respects whatsoever.” (This was consistent with the Northwest Territory Ordinance of 1787, which provided that there should be formed from the territory at least three but not more than five states.)

  2. A convention met in Ohio on November 1, 1802, and adopted a constitution on November 29, 1802.

  3. On January 19, 1803, a special committee of Congress reported that “the said Constitution and government so formed is republican, and in conformity to the principles contained in the articles of the ordinance made on the 13th day of July 1787, for the Government of the said Territory: and that it is now necessary to establish a district court within the said State, to carry into complete effect the laws of the United States within the same.” Annals of Congress, 7th Cong., 2d sess., p. 21.

  4. Congress then enacted legislation to declare that all of the laws of the United States shall be in force within the state of Ohio and to establish a federal district court in Ohio, stating in the preamble that “the said state has become one of the United States of America.” Act of February 19, 1803 (2 Stat. 201).

  5. Ohio began sending Representatives and Senators to Congress, began voting in Presidential elections, and has been considered to be a state ever since.

So what’ the problem? When Ohio was preparing for the 150th anniversary of its statehood, researchers discovered that they couldn’t establish the exact date that Ohio became a state, and that there was some confusion on the issue. For example, the Senate Manual (S. Doc. 5, 82d Cong., p. 570) gave the date as March 3, 1803, while the Congressional Biographical Directory (H. Doc. 607, 81st Cong., p. 76, note 9) gave the date as November 29, 1802. Further research showed that Ohio was unique because Congress declared that Ohio would become a state upon fulfilling certain conditions but had never formally declared that the conditions had been met. In admitting other states, Congress either declared that the state would be admitted as of a certain date, or passed an enabling act and then later declared that the state was admitted. In the case of Ohio, Congress passed an enabling act but never formally declared that the conditions of the enabling act had been met, either due to an oversight or due to a belief that a formal declaration was not intended and not needed.

In a 1953 report to Congress, the Legislative Reference Service of the Library of Congress stated that the lack of a formal resolution “may be considered unessential.” (1953 U.S.C.C.A.N. 2126, 2128.) However, Ohio asked for a formal declaration, sending a new petition for statehood to Washington by horseback (yes, in 1953), and Congress complied (with a certain number of snide jokes), passing a joint resolution that declared Ohio to be one of the United States of America as of March 1, 1803. P.L. 82-204, 67 Stat. 407. The Senate Report to the resolution states that the purpose was “to make formal, legal declaration of the de facto situation with respect to the admission of Ohio as a State of the United States.” Senate Report No. 720, 1953 U.S.C.C.A.N. 2124.

So the fact of the matter was that Ohio was accepted as a state of the United States sometime in 1802 or 1803 and Congress declared the admission to be as of a certain date in 1803, but the declaration was not made until 1953.

The argument that Ohio was not a state until 1953 was rejected in Knoblauch v. Commissioner of Internal Revenue, 749 F2d 200, 201-202 (5th Cir. 1984), cert. den., 474 U.S. 830 (1986), and in Bowman v. Government of the United States, 920 F.Supp. 623, 625 n. 4 (E.D. Pa. 1995), aff’d 88 AFTR2d Par. 2001-5537, No. 00-1689 (3rd Cir. 10/4/2001).

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The 16th Amendment is ineffective because the word “income” is not defined.

It is true that “income” is not defined by the Constitution, but the Constitution defines very few words. “Freedom of speech,” “due process,” and “equal protection” are all undefined in the Constitution, and yet those provisions are enforced by the courts. Similarly, the courts can determine what is meant by “income” within the 16th Amendment, and have held that “income” has the same meaning as used in everyday speech.

“For the present purpose we require only a clear definition of the term ‘income,’ as used in common speech, in order to determine its meaning in the amendment....”

Eisner v. Macomber, 252 U.S. 189, 206-7 (1920), (holding that “Income may be defined as the gain derived from capital, from labor, or from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets.” 252 U.S. at 207).

So the lack of an express definition of the word “income” income within the Constitution has consistently been held to be a frivolous objection to 16th Amendment. For example:

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: ... (8) the term “income” as used in the tax statutes is unconstitutionally vague and indefinite....”

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

(As an aside, one of the hallmarks of tax protester arguments is that they are “ad hoc” arguments, selectively and inconsistently applied. A tax protester will argue that “incomes” is not defined by the 16th Amendment, which is therefore ineffective, but no tax protester has ever argued that Article I, Section 9 of the Constitution is ineffective because “direct tax” is not sufficiently defined, because that would mean that all taxes are constitutional whether or not they are apportioned.)

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The income tax cannot apply to citizens outside of the District of Columbia, the territories of the United States, and the forts and military bases of the United States, because the federal government has no jurisdiction outside of those “federal areas.”

This represents a complete misunderstanding of the language of the Constitution, and also a complete misunderstanding of our entire federal system of government.

Paragraph 17 of Section 8 of Article I of the Constitution gives Congress the power of “exclusive Legislation” over the District of Columbia and other places purchased with the consent of the state legislature for “Forts, Magazines, Arsenals, dock-Yards and other needful Buildings.” Tax protesters believe that this clause is not an additional power, but limits and restricts the powers given to Congress by the other 16 paragraphs of Section 8, which is ridiculous.

The framers of the Constitution created a “federal” system of government, in which the powers that needed to be uniform throughout the nation were entrusted to Congress, while all other powers were retained by the states. The powers of Congress were therefore limited to certain “enumerated” powers, such as the power to establish a national currency and punish counterfeiters, establish post offices, maintain a national system for bankruptcies and naturalizations, regulate interstate commerce, create a national system for patents, copyrights, and trademarks, and others. To carry out these powers, Congress must of necessity have power over the citizens residing within states. For example, Congress can hardly punish counterfeiting if the federal government cannot act to arrest, try, and imprison counterfeiters who reside within the states. Similarly, Congress can hardly regulate interstate commerce if it has no power to enforce its regulations against the citizens and residents of states.

So the power of the federal government is not limited to the District of Columbia and other “federal areas,” but extends into the states. This has been expressly recognized by the Supreme Court:

“The people of the United States resident within any State are subject to two governments: one State, and the other National. ...” United States v. Cruikshank, 92 U.S. 542 (1876).

On the subject of taxation, the authors of the Federalist Papers expressly recognized that the Congressional power to tax would be concurrent with the taxing powers of the states, and that both the federal government and the state governments might be taxing the same subjects:

“[The power of imposing taxes on all articles other than exports and imports], I contend, is manifestly a concurrent and coequal authority in the United States and in the individual States.” (Emphasis added.)

And:

“As to a supposition of repugnancy between the power of taxation in the States and in the Union, it cannot be supported in that sense which would be requisite to work an exclusion of the States. It is, indeed, possible that a tax might be laid on a particular article by a State which might render it INEXPEDIENT that thus a further tax should be laid on the same article by the Union; but it would not imply a constitutional inability to impose a further tax.” Alexander Hamilton, Federalist #32, (Emphasis in original.)

Which is why President Washington sent federal troops into Pennsylvania in 1794 to enforce the federal taxes on distilling during the “Whiskey Rebellion.”

And which is why the Supreme Court ruled in 1796, with the concurring votes of two members of the Constitutional Convention then sitting as Justices on the court, that Congress could impose a tax on a citizen of Virginia for carriages held for private use. Hylton v. United States, 3 U.S. 171 (1796).

This implicit holding of Hylton was made explicit in 1820:

“The 8th section of the 1st article gives to Congress the ‘power to lay and collect taxes, duties, imposts and excises,’ for the purposes thereinafter mentioned. This grant is general, without limitation as to place. It, consequently, extends to all places over which the government extends. If this could be doubted, the doubt is removed by the subsequent words which modify the grant. These words are, ‘but all duties, imposts, and excises, shall be uniform throughout the United States.’ It will not be contended that the modification of the power extends to places to which the power itself does not extend. The power then to lay and collect duties, imposts, and excises, may be exercised, and must be exercised throughout the United States. Does this term designate the whole, or any particular portion of the American empire? Certainly this question can admit of but one answer. It is the name given to our great republic, which is composed of States and territories.”

Loughborough v. Blake, 18 U.S. (Wheat.) 317, 318-319 (1820), (Chief Justice Marshall, writing for a unanimous court; emphasis added).

Later, in 1870, the Supreme Court stated:

“The general government, and the States, although both exist within the same territorial limits, are separate and distinct sovereignties, acting separately and independently of each other, within their respective spheres.”

Collector v. Day, 78 U.S. 113, 124 (1870), (emphasis added).

And:

“[T]he revenues of the United States must be obtained in the same territory, from the same people, and excise taxes must be collected from the same activities, as are also reached by the states in order to support their local government.”

Flint v. Stone Tracy Co., 220 U.S. 107,154 (1911).

Finally:

“The United States is not a foreign sovereignty as regards the several States, but is a concurrent, and, within its jurisdiction, paramount sovereignty. Every citizen of a State is a subject of two distinct sovereignties, having concurrent jurisdiction in the State,-concurrent as to place and persons, though distinct as to subject-matter.”

Claflin v. Houseman, 93 U.S. 130, 136 (1876); Mondou v. New York, N.H., & H.R. Co., 223 U.S. 1, 57 (1912).

The one exception to the principle of concurrent power is the District of Columbia and forts and other areas described in clause 17 of Article I, section 8. In those areas, Congress can exercise “exclusive Legislation,” meaning that the states are excluded from any legislative powers, and Congress can enact general civil and criminal laws of the type usually enacted only by the states.

And see what the courts have said about the claim that the federal government has no power to tax within a state:

“Moreover, the tax code imposes a “direct nonapportioned [income] tax upon United States citizens throughout the nation, not just in federal enclaves,” such as postal offices and Indian reservations. United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990), cert. denied, ___ U.S. ___, 111 S.Ct. 2022, 114 L.Ed.2d 108 (1991) (citing Brushaber v. Union Pacific R.R., 240 U.S. 1, 12-19, 36 S.Ct. 236, 239-42, 60 L.Ed. 493 (1916)). Mr. Sloan’ proposition that he is not subject to the jurisdiction of the laws of the United States is simply wrong.”

United States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991), cert. den. 112 S.Ct. 940 (1992).

“On the merits, defendant argues that the District Court lacked jurisdiction over him because he is solely a resident of the state of Michigan and not a resident of any ‘federal zone’ and is therefore not subject to federal income tax laws. This argument is completely without merit and patently frivolous.”

United States v. Mundt, 29 F.3d 233, 237 (6th Cir. 1994).

“Dickstein’ motion to dismiss advanced the hackneyed tax protester refrain that federal criminal jurisdiction only extends to the District of Columbia, United States territorial possessions and ceded territories. Dickstein’ memorandum blithely ignored 18 U.S.C. § 3231 which explicitly vests federal district courts with jurisdiction over ‘all offenses against the laws of the United States.’ Dickstein also conveniently ignored article I, section 8 of the United States Constitution which empowers Congress to create, define and punish crimes, irrespective of where they are committed. [Citations omitted.] Article I, section 8 and the sixteenth amendment also empowers Congress to create and provide for the administration of an income tax; the statute under which defendant was charged and convicted, 26 U.S.C. § 7201, plainly falls within that authority. Efforts to argue that federal jurisdiction does not encompass prosecutions for federal tax evasion have been rejected as either ‘silly’ or ‘frivolous’ by a myriad of courts throughout the nation. [Citations omitted.] In the face of this uniform authority, it defies credulity to argue that the district court lacked jurisdiction to adjudicate the government’ case against defendant.”

United States v. Collins, 920 F.2d 619 (10th Cir. 1990).

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: ... (2) the authority of the United States is confined to the District of Columbia ....”

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“Caniff’ claim that he is a non-resident alien is preposterous on its face. He acknowledges that he lives in Indiana. The tax power applies fully to each and every of the fifty United States, not just the District of Columbia.”

Caniff v. Commissioner, 52 F.3d 328 (7th Cir. 1995), (unpublished opinion).

“This is but another ‘of the many suits, prosecuted by disgruntled taxpayers, that neither advances the law nor serves any purpose save to clog the court’ dockets, waste judicial time and cause protracted delays to worthy litigation.’ Cook v. Spillman, 806 F.2d 948 (9th Cir. 1986). Lovett’ claim that he is not a taxpayer subject to the authority of the United States or the IRS is patently frivolous.”

Lovett v. Gillen, 39 F3d 1187 (9th Cir. 1995), (the court imposed a $1,000 sanction for filing a frivolous appeal).

“Much of Becraft’ reply is also devoted to a discussion of the limitations of federal jurisdiction to United States territories and the District of Columbia and thus the inapplicability of the federal income tax laws to a resident of one of the states...this claim also has no semblance of merit.”

In re Lowell H. Becraft (United States v. Nelson), 885 F.2d 547 (9th Cir. 1989), (Mr. Becraft, attorney for Mr. Nelson, was fined $2,500 for filing a petition that the court found to be so lacking in merit as to be “frivolous”).

“Defendant’ first motion is styled ‘motion to dismiss for lack of exclusive legislative jurisdiction.’ This motion is premised on Article I, Section 8, Clause 17 of the United States Constitution, which provides: [The Congress shall have the power] [t]o exercise exclusive legislation in all cases whatsoever, over such district (not exceeding ten miles square) as may, by cession of particular States, and the acceptance of Congress, become the seat of the government of the United States, and to exercise like authority over all places purchased by the consent of the Legislature of the State in which the same shall be, for the erection of forts, magazines, arsenals, dockyards, and other needful buildings. Defendants argue that Clause 17 limits the legislative power of Congress such that only the geographical areas over which Congress may legislate, or may exercise its power of taxation, are those areas described in Clause 17. This position is contrary to both the natural reading of the Constitution and the case law. Clause 17 limits not the power of Congress, but the power of the states. ‘[T]he word “exclusive” was employed to eliminate any possibility that the legislative power of Congress over the District [of Columbia] was to be concurrent with that of the ceding states.’ District of Columbia v. John R. Thompson Co., 346 U.S. 100, 109, 73 S.Ct. 1007, 1012, 97 L.Ed. 1480 (1953).”

United States v. Sato, 704 F.Supp. 816 (N.D.Ill. 1989).

“Along with his claim that he is not a United States citizen, plaintiff further claims that federal laws, including the I.R.C., do not apply to citizens of the state of Washington, a ’compact state.’ Article I, section 8 of the United States Constitution grants Congress the power to ‘lay and collect Taxes.’ U.S. Const., Art. I, section 8. ... The Sixteenth Amendment provides that ‘Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.’ ... Pursuant to the authority vested in Congress under the Sixteenth Amendment to impose a direct income tax on citizens and residents of the United States comprised of the 50 states and the District of Columbia, Congress enacted Title 26 of the United States Code, the Internal Revenue Code.”

Betz v. United States, 40 Fed.Cl. 286, 295 (1998).

A somewhat related claim is the argument that corporations incorporated under the laws of individual states are outside of the control of the United States and so not required to withhold taxes. This argument has also been rejected:

Taylor claims that he is a citizen of Tennessee but not the United States, and that therefore the federal income tax law does not apply to him. He also argues that his employer is “foreign” to the United States because it is incorporated in Louisiana, rather than being an arm of the federal government, and is therefore not eligible to withhold income tax. Finally, he claims that his wages are not included in the federal income tax system because they are not “Income,” as they are not “for gain or profit,” but rather are mere “compensation.”

Taylor’s claims are patently frivolous, and it is clear from the record and the district court’s opinion that Taylor should have been aware that his claims were frivolous when he filed suit. Taylor’s claims are an unsubtle attempt at protesting the federal income tax system. We have previously held that, “it is clear beyond peradventure that the law is well established and long settled that wages are includable in taxable income.” Waters v. Comm’r, 764 F.2d 1389, 1390 (11th Cir. 1985) (per curiam). Further, we have held that any appeal of this issue is patently frivolous and a cause for sanctions. McNair v. Eggers, 788 F.2d 1509, 1510 (11th Cir. 1986) (per curiam).

Taylor v. Gaither, 88 AFTR2d 2001-6055, KTC 2001-432 (11th Cir. 2001), aff’g 87 AFTR2d 2001-1688, KTC 2001-584 (S.D. Ala. 2001) (Rule 11 sanctions imposed against plaintiff who sued to enjoin his employer from withholding federal income tax).

The claim that “the United States does not include all or a part of the physical territory of the 50 States and instead consists of only places such as the District of Columbia, Commonwealths and Territories (e.g., Puerto Rico), and Federal enclaves (e.g., Native American reservations and military installations),” or similar arguments described as frivolous in Rev. Rul. 2004-28, 2004-12 I.R.B. 624, 2004-1 C.B. 624, or Rev. Rul. 2007-22, 2007-14 I.R.B. 866, has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

In the same notice, the claim that “[o]nly certain types of taxpayers are subject to income and employment taxes, such as ... residents of the District of Columbia or the Federal territories, or similar arguments described as frivolous in Rev. Rul. 2006-18, 2006-15 IRB 743” was also identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Tax Protester “Evidence”

In support of their claim that the federal government cannot impose taxes within the states of the United States, tax protesters frequently cite a decision of the New York Court of Appeals (the highest court in New York, which calls its trial courts “Supreme Courts”):

“The government of the United States is a foreign corporation with respect to a state.”

In re Merriam, 36 N.E. 505, 141 N. Y. 479 (1894), affirmed sub nom. United States v. Perkins, 163 U. S. 625 (1896).

The above “quotation” does not appear in the opinion of the New York Court of Appeals, and does not appear in the opinion of the Supreme Court. In appears that some tax protester copied a one-sentence summary of the decision from an article or treatise (probably Corpus Juris Secundum) and thought the summary was a quote from the opinion, and other tax protesters have been happily cutting-and-pasting the “quotation” without ever checking to see what the case was about or courts actually said.

The issue in the case was the application of a New York tax to property that a decedent’s will gave to the United States government. The Court of Appeals held that the exemption for gifts to charitable corporations was limited to gifts to domestic corporations (i.e., corporations created under the laws of the state of New York) and so the gift to the United States did not qualify for the exemption and the gift was subject to tax.

In affirming, the U.S. Supreme Court agreed that the New York legislature “intended to allow an exemption only in favor of such corporations as it had itself created, and which might reasonably be supposed to be the special objects of its solicitude and bounty” (163 U.S. at 630) and that the exemption for charitable corporations was not intended to apply to “a purely political or governmental corporation, like the United States” (163 U.S. at 631).

In other words, New York decided to treat gifts to the United States government differently from gifts to domestic charitable corporations, and the U.S. Supreme Court agreed that it could. The case has nothing whatsoever to do with the power of the federal government to impose or collect taxes within the states of the United States. (There was another issue discussed by the Supreme Court, which was whether New York could constitutionally tax a gift to the United States, but that issue is not relevant to the “foreign corporation” argument.)

And the tax protester “quotation” is completely at odds with something that the Supreme Court really did say:

“The United States is not a foreign sovereignty as regards the several States, but is a concurrent, and, within its jurisdiction, paramount sovereignty.”

Claflin v. Houseman, 93 U.S. 130, 136 (1876).

At best, the Merriam “quote” is an example of a quotation out of context, and at worst it’s an example of an outright fabrication. (There is room for stupidity and sloppiness in between.)

Related topics:

[Return to Table of Contents]

The income tax cannot apply to natural-born “sovereign state citizens” because they are not “citizens” within the meaning of the 14th Amendment.

There are actually a number of problems with the concept of “citizens” of the states of the United States who are not “citizens” within the meaning of the 14th Amendment. If this tax protester claim were true, then:

  1. The words “citizen of the United States” would have a meaning in the 14th Amendment that is different than the meaning given those same words in other parts of the Constitution.
  2. The words “United States” would have a meaning in the first sentence of the 14th Amendment that is different than the meaning given those words in other parts of the Constitution.
  3. The word “jurisdiction” would have a meaning in the first sentence of the 14th Amendment that is different than the meaning given that word in other parts of the Constitution.
  4. The 14th Amendment would extend the power of Congress to legislate for “federal citizens” without regard to the limits on Congressional power found in other parts of the Constitution.
  5. The 14th Amendment would have created a new kind of citizenship, and did not merely extend the existing definition of “citizen” to include former slaves as well as whites.
  6. The 14th Amendment would not mean what it says, and would not apply to “all persons.”

  7. The power of Congress to tax would limited by citizenship, and Congress would not be able to tax immigrants or foreigners who are within the United States but not citizens of the United States.

All of the above statements are wrong, but for the purpose of this FAQ the last fallacy is the most important, because there is nothing in the Constitution that limits the power of Congress to tax only citizens, however defined. The power to tax that is given to Congress by Article I, Section 8, of the Constitution, and by the 16th Amendment, is not limited to the taxation of citizens, whether “sovereign state citizens,” “14th Amendment citizens,” or any other type of citizen. The power to tax applies to all residents of the United States whether or not they are citizens, as well as to all income earned within the United States whether or not the income is earned by residents or non-residents. (The income tax also applies to citizens of the United States living in other countries, but that is another issue. Cf., Cook v. Tait, 265 U.S. 47 (1924).) Therefore, even if the claim of two types of citizenship were correct (which is a big “if”), the claim is still irrelevant to the federal income tax because Congress can tax noncitizens as well as citizens.

As explained above, tax protesters often have trouble with the concept of the concurrent sovereignty of the federal government with the states. For that reason, tax protesters often fail to understand that our Constitution recognizes state and federal citizenship as two different relationships, with the rights and obligations of state citizenship being separate from the rights and obligations of federal citizenship. However, the Supreme Court has clearly recognized the reality of concurrent citizenship, referring to “a citizenship which owes allegiance to two sovereigns, and claims the protection of both.” United States v. Cruikshank, 92 U.S. 542, 549 (1876).

Before the 14th Amendment, it was not clear how citizenship was determined. This uncertainty culminated in the infamous Dred Scott decision, Dred Scott v. Sandford, 60 U.S. 393 (1856), in which it was held that, because slaves (and even former slaves) were not considered citizens at the time of the adoption of the Constitution, they could never be considered citizens (or even persons) under the Constitution, regardless of any state law or federal statute to the contrary. Following the Civil War, this ruling was reversed by the adoption of the 14th Amendment to the Constitution.

This history was summarized by the U.S. Supreme Court as follows:

“The first section of the fourteenth article, to which our attention is more specially invited, opens with a definition of citizenship--not only citizenship of the United States, but citizenship of the States. No such definition was previously found in the Constitution, nor had any attempt been made to define it by act of Congress. It had been the occasion of much discussion in the courts, by the executive departments, and in the public journals. It had been said by eminent judges that no man was a citizen of the United States, except as he was a citizen of one of the States composing the Union. Those, therefore, who had been born and resided always in the District of Columbia or in the Territories, though within the United States, were not citizens. Whether this proposition was sound or not had never been judicially decided. But it had been held by this court, in the celebrated Dred Scott case, only a few years before the outbreak of the civil war, that a man of African descent, whether a slave or not, was not and could not be a citizen of a State or of the United States. This decision, while it met the condemnation of some of the ablest statesmen and constitutional lawyers of the country, had never been overruled; and if it was to be accepted as a constitutional limitation of the right of citizenship, then all the negro race who had recently been made freemen, were still, not only not citizens, but were incapable of becoming so by anything short of an amendment to the Constitution.

“To remove this difficulty primarily, and to establish a clear and comprehensive definition of citizenship which should declare what should constitute citizenship of the United States, and also citizenship of a State, the first clause of the first section was framed.

“‘All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State in which they reside.’

“The first observation we have to make of this clause is, that it puts at rest both the questions which we state to have been the subject of differences of opinions. It declares that persons may be citizens of the United States without regard to their citizenship of a particular State, and it overturns the Dred Scott decision by making all persons born within the United States and subject to its jurisdiction citizens of the United States.”

The Slaughterhouse Cases, 83 U.S. 36, 72-73 (1873), (emphasis in original).

Following the plain words of the 14th Amendment and the decision in the Slaughterhouse Cases, the federal courts have consistently ruled that all persons born within the United States are citizens of the United States, and state citizenship follows from federal citizenship.

“By the original constitution citizenship in the United States was a consequence of citizenship in a state. By this clause [of the 14th Amendment] this order of things is reversed; ... and citizenship in a state is a result of citizenship in the United States.”

Colgate v. Harvey, 296 U.S. 404, 427, n. 3 (1935), quoting the opinion of Judge Woods in United States v. Hall, 26 Fed.Cas. No. 15,282, page 79, 81.

So the Supreme Court has held that a state cannot deny rights of state citizenship to a citizen of the United States who resides within that state. Dunn v. Blumstein, 405 U.S. 330 (1972); Evans v. Cornman, 398 U.S. 419 (1970).

The principle was more recently expressed as follows:

“Citizens of the United States, whether rich or poor, have the right to choose to be citizens ‘of the States wherein they reside.’ U.S. Const., Amdt. 14, section 1. The States, however, do not have any right to select their citizens.”

Saenz v. Roe, 526 U.S. 489 (1999), aff’g 134 F.3d 1400.

One Circuit Court of Appeals has put it this way:

“Relying on this Supreme Court authority, circuit and district courts have treated the question before us today as one long decided: ‘[I]n order to be a citizen of a state, it is elementary law that one must first be a citizen of the United States.’”

Kantor v. Wellesley Galleries, Ltd., 704 F.2d 1088, 1090-1091 (9th Cir. 1983), (citations omitted).

Tax protesters (and white supremacists) argue that the phrase “all persons” does not mean all persons, but only refers to former slaves (i.e., blacks), because the purpose of the amendment was to grant rights of citizenship to blacks and whites were already citizens. Even assuming that it is possible to conclude that the amendment does not mean what it says, it cannot be concluded that the amendment only applies to blacks if the effect would be to treat blacks differently than whites. The purpose of the amendment was to give blacks the same rights of citizenship as whites. That purpose would be defeated if blacks were to enjoy a form of citizenship that is somehow different than the citizenship enjoyed by whites.

Tax protesters (and white supremacists) also argue that the phrase “subject to the jurisdiction thereof” excludes those born within the states of the United States because only those born in the District of Columbia and the territories of the United States are “subject to the jurisdiction” of the federal government. This is completely wrong, on several grounds:

So, what have the federal courts said about the claim that a person born in a state of the United States is not a “citizen of the United States” and is not subject to the federal income tax?

“Also basic to Mr. Sloan’ “freedom from income tax theory” is his contention that he is not a citizen of the United States, but rather, that he is a freeborn, natural individual, a citizen of the State of Indiana, and a “master”--not “servant”--of his government. As a result, he claims that he is not subject to the jurisdiction of the laws of the United States. This strange argument has been previously rejected as well. “All individuals, natural or unnatural, must pay federal income tax on their wages,” regardless of whether they requested, obtained or exercised any privilege from the federal government. Lovell [v. United States], 755 F.2d [517] at 519 [7th Cir. 1984]; cf. [United States v.] Studley, 783 F.2d [934] at 937 [9th Cir. 1986] (Studley’ argument that “she is not a ‘taxpayer’ because she is an absolute, freeborn and natural individual ... is frivolous. An individual is a ‘person’ under the Internal Revenue Code.”). Moreover, the tax code imposes a “direct nonapportioned [income] tax upon United States citizens throughout the nation, not just in federal enclaves,” such as postal offices and Indian reservations. United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990), cert. denied, ___ U.S. ___, 111 S.Ct. 2022, 114 L.Ed.2d 108 (1991) (citing Brushaber v. Union Pacific R.R., 240 U.S. 1, 12-19, 36 S.Ct. 236, 239-42, 60 L.Ed. 493 (1916)). Mr. Sloan’ proposition that he is not subject to the jurisdiction of the laws of the United States is simply wrong.”

United States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991), cert. den. 112 S.Ct. 940 (1992).

“And, finally, we reject appellants’ contention that they are not citizens of the United States, but rather “Free Citizens of the Republic of Minnesota” and, consequently, not subject to taxation. See United States v. Kruger, 923 F.2d 587, 587-88 (8th Cir.1991) (rejecting similar argument as “absurd”).”

United States v. Gerads, 999 F.2d 1255 (8th Cir. 1993), cert. den. 510 U.S. 1193 (1994).

“Appellant challenges the district court’ jurisdiction by contending that because he is a state citizen, the United States government lacks the constitutional authority both to subject him to federal tax laws and to prosecute him for failing to comply with those laws. Citing to Dred Scott v. Sandford, 60 U.S. (19 How.) 393 (1856), appellant argues that as a white, natural born, state citizen, he is not subject to the taxing power of Congress. This argument is completely without merit. As this court has made clear in the past, claims that a particular person is ‘not a [federal] taxpayer because [he or] she is an absolute, free-born and natural individual’ constitutionally immune to federal laws is frivolous and, in civil cases, can serve as the basis for sanctions. United States v. Studley, 783 F.2d 934, 937, n. 3 (9th Cir. 1986).”

United States v. McDonald, 919 F.2d 146, 90 TNT 246-11, No. 88-5239 (9th Cir. 11/26/1990).

To the extent the Monfortons contend that as ‘Sovereign State Citizens of Washington States’ they are not subject to federal income tax, this contention is frivolous.”

Monforton v. United States, No. CV-94-00058-FVS, KTC 1995-354, n. 2, No. CV-94-00058-FVS, (9th Cir. 1995), (unpublished).

“The Epperlys next argue that since they are ‘American Inhabitants’ who possess sovereign powers and immunities, they are properly classified under the tax code as ‘nonresident aliens’ and are not subject to taxation by the federal government. Such an argument is frivolous.”

Epperly v. United States, 1992 U.S. App. LEXIS 32286 (9th Cir. 1992), (unpublished).

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: (1) individuals (“free born, white, preamble, sovereign, natural, individual common law `de jure’ citizens of a state, etc.”) are not “persons” subject to taxation under the Internal Revenue code; ....”

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“Plaintiff claims that he is a nonresident alien or ‘foreign individual of America’ in relation to the United States, and that his residence and citizenship rest solely with the States of Washington, ‘a free, independent, sovereign, territory’ with ‘coequal authority with the other compact states of America.’ ... Despite plaintiff’ creative argument, the court takes judicial notice of the fact that the state of Washington is one of the fifty states that comprise the United States of America, entering the Union in 1889 as the forty-second state. [Citations omitted.] The Fourteenth Amendment states that ‘[a]ll persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.’ U.S. Const., Amend. XIV, section 1. Plaintiff, therefore, along with being a citizen of the state of Washington, is a United States citizen because he was born in Washington State to parents who were United States citizens. ... As a United States citizen, plaintiff is required to pay federal income tax.”

Betz v. United States, 40 Fed.Cl. 286, 294-296 (1998)

See also, United States v. Mundt, 29 F.3d 233, 237 (6th Cir. 1994); United States v. Nelson (In re Becraft), 885 F.2d 548 (9th Cir. 1989); United States v. Steiner, 963 F.2d 381 (9th Cir. 1992).

The claim that “[a] taxpayer’s income is excluded from taxation when the taxpayer rejects or renounces United States citizenship because the taxpayer is a citizen exclusively of a State (sometimes characterized as a “natural-born citizen” of a “sovereign state”), that is claimed to be a separate country or otherwise not subject to the laws of the United States” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

In the same notice, the claim that “[i]ndividuals may not be taxed unless they are “citizens” within the meaning of the Fourteenth Amendment” was also identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Tax Protester “Evidence”

Where did tax protesters get the idea that the 14th Amendment created some different kind of citizenship, or that there is a difference between citizenship under the 14th Amendment and “citizenship” as it existed before (or even after?) the 14th Amendment? From a collection of obscure, discredited, and misunderstood decisions.

“No white person born within the limits of the United States and subject to their jurisdiction ... or born without those limits, and subsequently naturalized under their laws, owes his status of citizenship to the recent amendments to the Federal Constitution. The purpose of the 14th Amendment .. was to confer the status of citizenship upon a numerous class of persons domiciled with the limits of the United States who could not be brought within operation of the naturalization laws because native born, and whose birth, though native, at the same time left them without citizenship. Such persons were not white persons but in the main were of African blood, who had been held in slavery in this country...”

Van Valkenburg v. Brown, 43 Cal. 43, 47 (1872).

The Van Valkenburg decision is frequently quoted for the proposition that white citizens do not owe their citizenship to the 14th Amendment. However, the decision was a state court decision, not a federal decision, and it is inconsistent with the decision of the U.S. Supreme Court in the Slaughterhouse Cases (which was decided the following year, in 1873). (See the quotation above from the Slaughterhouse Cases, in which the court emphasized that, under the 14th Amendment, all persons born in the United States are citizens.)

The other problem with the Van Valkenburg decision is that, although the California court stated that there was a difference between how the plaintiff (a white woman) became a citizen, the court nevertheless concluded that she was a citizen of the United States within the meaning of the 14th Amendment.

“[B]y whatever means the plaintiff became a citizen of the United States, her privileges and immunities cannot be abridged by State laws; and this is true. The purpose and effect of the amendment, in this respect, is to place the privileges and immunities of citizens of the United States beyond the operation of States legislation.”

Van Valkenburg v. Brown, 43 Cal. 43, 47 (1872).

So although an old, discredited decision from California may distinguish between white citizens and black citizens, it is a distinction without a difference.

Another decision often quoted by tax protesters is also from the California Supreme Court:

“By metaphysical refinement, in examining our form of government, it might be correctly said that there is no such thing as a citizen of the United States. ... A citizen of any one of the States of the Union, is held to be, and called a citizen of the United States, although technically and abstractly there is no such thing. To conceive a citizen of the United States who is not a citizen of some one of the states, is total foreign to the idea, and inconsistent with the proper construction and common understanding of the expression used in the constitution, which must be deduced from its various other provisions. The object then to be obtained, but the exercise of the power of naturalization, was to make citizens of the respective states.”

Ex parte Knowles, 5 Ca. 300, 302 (1855).

Notice the date? This decision was rendered 13 years before the 14th Amendment was ratified. Even if this opinion of the California Supreme Court (not a federal court) was correct in 1855, it was not correct once the 14th Amendment was ratified. See Levin v. United States, 128 F. 826, 282 (8th Cir. 1904); Harris v. Sacramento County, 196 P. 895, 897 (Calif. Dist. App. Ct. 1921).

Next up is a federal court decision:

“The 14th Amendment creates and defines citizenship of the United States. It had long been contended, and had been held by many learned authorities, and had never been judicially decided to the contrary, that there was no such thing as a citizen of the United States, except by becoming a citizen of some state.”

United States v. Anthony, 24 Fed.Cas. 829, 830 (N.D.N.Y. 1873).

The major problem with this quotation is that it is incomplete, and misleading when taken out of context. See what the court said next:

“No mode existed, it was said, of obtaining a citizenship of the United States, except by first becoming a citizen of some state. This question is now at rest. The fourteenth amendment defines and declares who shall be citizens of the United States, to wit, ‘all persons born or naturalized in the United States, and subject to the jurisdiction thereof.’ The latter qualification was intended to exclude the children of foreign representatives and the like. With this qualification, every person born in the United States or naturalized is declared to be a citizen of the United States and of the state wherein he resides.”

United States v. Anthony, 24 Fed.Cas. at 830.

Reading the whole quotation, it is clear that the court was saying what every other court had said, which is that there was some question before the adoption of the 14th Amendment about what “citizen of the United States” meant and how one became a citizen, but the 14th Amendment settled the question by declaring that every person born within the United States was a citizen of the United States.

Tax protesters will sometimes quote a Supreme Court decision, but the quotation is (once again) taken out of context:

“... the 14th Amendment is throughout affirmative and declaratory, intended to ally doubts and to settle controversies which had arisen, and not to impose any new restriction upon citizenship.” United States v. Wong Kim Ark, 169 U.S. 649, 687-688 (1898), (emphasis added).

Why tax protesters cite the Wong Kim Ark decision is a bit of a mystery, because in that case the U.S. Supreme Court held that a person born to Chinese nationals living in California was a citizen of the United States and could not be prevented from re-entering the United States after a visit to China. The court’ ruling was not limited to blacks, Chinese, or any other race or nationality, the court declaring:

“The fourteenth amendment affirms the ancient and fundamental rule of citizenship by birth.... The amendment, in clear words and in manifest intent includes the children born within the territory of the United States of all other persons, of whatever race or color, domiciled within the United States.” 169 U.S. at 693 (emphasis added).

Because the person in question was born in California, a state of the United States, and not the District of Columbia or other “federal area,” an implicit and explicit holding in the case is that California is “in the United States and subject to the jurisdiction thereof,” the court stating, “It is impossible ... to hold that persons ‘within the jurisdiction’ of one of the states of the Union are not ‘subject to the jurisdiction of the United States.’” 169 U.S. at 687.

The opinion in Wong Kim Ark also contradicts the claim that the 14th Amendment created a “new” or “second class” of citizenship. After reviewing common law decisions on citizenship, both in England before 1776 and in the United States before the 14th Amendment, the court concluded that the 14th Amendment “is declaratory of existing rights, and affirmative of existing law.” 169 U.S. at 688.

Another decision that tax protesters like to cite in favor of their claim that “within the United States and subject to the jurisdiction thereof” means within the District of Columbia, a U.S. possession, or some other “federal zone” is the decision of the Supreme Court in Hooven & Allison v. Evatt, in which the court said:

“The term ‘United States’ may be used in any one of several senses. It may be merely the name of a sovereign occupying the position analogous to that of other sovereigns in the family of nations. It may designate the territory over which the sovereignty of the United States extends, or it may be the collective name of the states which are united by and under the Constitution.”

Hooven & Allison Co. v. Evatt, 324 U.S. 652, 671-2 (1945).

Tax protesters believe that the second meaning (“the territory over which the sovereignty of the United States extends”) does not include the states of the United States, but is limited to the District of Columbia, the possessions of the United States, and other “federal zones” over which Congress has “exclusive jurisdiction.” Needless to say, there are several problems with this bizarre reading of the court’s opinion:

  1. The Supreme Court never said that the sovereignty of the United States does not extend to the states of the United States. As explained above, the courts have consistently held that “The people of the United States resident within any State are subject to two governments: one State, and the other National....” and that the citizenship of the United States “owes allegiance to two sovereigns, and claims the protection of both.” United States v. Cruikshank, 92 U.S. 542, 549 (1876).

  2. The Supreme Court opinion in Hooven & Allison has a footnote citation to a Harvard Law Review article in support of the statement that there are three meanings for “United States.” In that article, the author was very clear in stating that the sovereignty of the United States should be used to designate both the territories of the United States and the states, “sovereignty being the only thing that can be predicated alike of States and territories.” Langdell, ‘The Status of our New Territories’, 12 Harv.L.Rev. 365, 371 (1899); cited in Hooven & Allison Co. v. Evatt, 324 U.S. at 672, note 6.

  3. It has been uniformly held that the possessions (territories) of the United States are not within the meaning “United States” as used in the Constitution. This is expressly stated in the Langdell article cited above. “It is very important, however, to understand that the use of the term ‘United States’ to designate all territory over which the United States is sovereign, is, like the similar use of the word ‘empire’ in England and other European countries, purely conventional; and that it has, therefore, no legal or constitutional significance. Indeed, this use of the term has no connection whatever with the Constitution of the United States....” In the Hooven & Allison decision itself, the Supreme Court held that the Philippines (then a territory of the United States) were not within the “United States” for purposes of Article I, Section 10 (prohibiting states from imposing any tax on imports or exports). Accord, Downes v. Bidwell, 182 U.S. 250, 251 (“[I]t can nowhere be inferred that the territories were considered a part of the United States.”)

  4. There is simply no statute or court decision in the history of the United States in which the phrase “United States” has ever been interpreted to refer to the possessions of the United States to the exclusion of the states. Tax protesters desperately want to find such a statute or decision, but it doesn’t exist.

So, the Supreme Court described three possible meanings of “United States” in the in Hooven & Allison decision: (a) the government of the United States, (b) the states and territories of the United States, and (c) the states of the United States without the territories. Both of the geographical definitions of “United States” include the states of the United States.

To summarize:

Despite the clear language of the 14th Amendment, and the clear court decisions declaring that all persons born in the United States are citizens of the United States, many tax protesters continue to claim that there are two types of citizenship, one for whites and one for blacks. This racist argument is more than a little disturbing. Nevertheless, although tax protesters squirm and twist and hem and haw, the fact remains that (a) no court in the history of the United States has ever stated that there were two different types of U.S. citizenship, with different rights or obligations, (b) no court since the adoption of the 14th Amendment has ever held that a person born in a state of the United States is not a citizen of the United States, and (c) no court in the history of the United States has ever held that any resident of the United States can be exempt from federal income tax by reason of a different kind of citizenship.

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The federal income tax cannot apply to wages, because forcing people to share the fruits of their labors would be the same as slavery or “involuntary servitude” prohibited by the Thirteenth Amendment.

The Thirteen Amendment to the U.S. Constitution, ratified after the Civil War, states in Section 1:

“Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.”

It is an insult to every person of African descent to compare the income tax, paid by citizens who are free to work (or not work) for whomever they please and for whatever compensation they are able to negotiate, to the slavery that was imposed on the Africans that were kidnapped and brought to this country in chains, and who (and whose descendants, for more than 100 years) were bought and sold, forced to work back-breaking labor, whipped or beaten, and occasionally murdered.

And the courts have recognized that taxation is not the same as slavery.

“If the requirements of the tax laws were to be classed as servitude, they would not be the kind of involuntary servitude referred to in the Thirteenth Amendment.”

Porth v. Brodrick, 214 F.2d 925, 926 (10th Cir. 1954).

“The specification, that the act violates the Thirteenth Amendment by imposing involuntary servitude upon an employer of domestic servants, seems to us far-fetched, indeed frivolous.”).

Abney v. Campbell, 206 F.2d 836, 841 (5th Cir. 1953), cert. den. 346 U.S. 924 (1954).

See also, Peeples v. Commissioner, T.C. Memo. 1986-584, aff’d 829 F.2d 1120 (4th Cir. 1987); Beltran v. Cohen, 303 F.Supp. 889, 893 (N.D.Calif. 1969); Ginter v. Southern, 611 F.2d 1226 (8th Cir. 1979); Wilbert v. Internal Revenue Service (In re Wilbert), 262 B.R. 571, 578, 88 A.F.T.R.2d 6650 (Bankr. N.D. Ga. 2001).

A taxpayer who fails to comply with the tax laws claiming that the Internal Revenue Code violates the Thirteenth Amendment may be assessed a 20 percent penalty under section 6662 for “negligence or disregard of rules or regulations.” David Anthony Avery v. Commissioner, T.C. Memo. 1999-418 (1999).

The Internal Revenue Service has therefore ruled that the argument that the federal income tax constitutes “involuntary servitude” is frivolous and that persons failing to file returns or pay taxes based on that argument may face civil and criminal penalties. Rev. Rul. 2005-19, 2005-14 I.R.B. 819.

The claim that “[m]andatory or compelled compliance with the internal revenue laws is a form of involuntary servitude prohibited by the Thirteenth Amendment” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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The federal income tax amounts to a deprivation of property without due process and without just compensation, which is contrary to the 5th Amendment to the constitution.

This is just plain silly. Taxes are expressly authorized by the Constitution, and all taxes are a taking of property. As the Supreme Court explained in 1916:

“So far as the due process clause of the 5th Amendment is relied upon, it suffices to say that there is no basis for such reliance, since it is equally well settled that such clause is not a limitation upon the taxing power conferred upon Congress by the Constitution; in other words, that the Constitution does not conflict with itself by conferring, upon the one hand, a taxing power, and taking the same power away, on the other, by the limitations of the due process clause.”

Brushaber v. Union Pacific R.R., 240 U.S. 1, 24 (1916).

In Rev. Rul. 2005-19, 2005-14 I.R.B. 819, the IRS confirmed that the argument that the federal income tax violates the due process clause of the 5th Amendment is “frivolous” and reliance on it can result in civil and criminal penalties.

The claim that “[i]ncome taxation, tax withholding, or the assessment or collection of tax is a ‘taking’ of property without due process of law or just compensation in violation of the Fifth Amendment” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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Any assessment or collection of any tax without a court order is a violation of the due process clause of the 5th Amendment to the Constitution.

This belief represents a fundamental misunderstanding of what is meant by “due process” and what satisfies “due process.”

“Due process” has been defined as the “opportunity to be heard by an impartial trier of fact.” (And notice that “opportunity” is singular and not plural, because a single opportunity can be sufficient, with no right of appeal.)

Normally, the federal income tax is “self-assessed,” which means that taxpayers file returns in which they determine how much tax they owe, and the amount of tax reported by the taxpayer can be entered as an assessment without any further notice to the taxpayer.

If the IRS should determine that a different amount of tax is owed because the income and deductions to which the taxpayer is entitled are determined to be different from what is reported by the taxpayer (as the result of an audit, for example), then the IRS must first give the taxpayer a notice of the deficiency determined by the IRS and the taxpayer has 90 days within which to petition the Tax Court to challenge the deficiency. If no Tax Court petition is filed, then the IRS can proceed to assess and collect the tax. If a Tax Court petition is filed, then the IRS must wait until there is a decision by the Tax Court and only after that decision, which comes after the Tax Court has heard and considered whatever evidence the taxpayer may be able to offer in support of the return and whatever evidence the IRS may offer in support of the claimed deficiency, can the IRS assess the deficiency (if any) that is approved by the Tax Court. So there is an opportunity for due process before the IRS assesses a tax deficiency.

Because there has been an opportunity for due process in the assessment process, and because there are judicial remedies to obtains refunds of taxes wrongfully collected, the IRS may proceed to collect the tax by levy on the property of the taxpayer without any additional court hearings or court approval once the tax has been assessed.

Although many tax protesters object to these procedures, they are actually identical in substance to the procedures used in most civil lawsuits between private parties.

As far as the constitutionality of the levy is concerned, the Supreme Court has confirmed that “The constitutionality of the levy procedure . .. ‘has long been settled.’ “ National Bank of Commerce, 472 U.S. 713, 721 (1985).

See also, Phillips v. Commissioner, 283 U.S. 589, 595 (1931) (“Where, as here, adequate opportunity is afforded for a later judicial determination of the legal rights, summary proceedings to secure prompt performance of pecuniary obligations to the government have been consistently sustained.”); Hughes v. IRS, 62 F. Supp.2d 796, 799 (E.D.N.Y. 1999).

In Rev. Rul. 2005-19, 2005-14 I.R.B. 819, the IRS confirmed that the argument that the federal income tax violates the due process clause of the 5th Amendment is “frivolous,” citing the opinion of the Supreme Court in Phillips v. Commission (see above), and that reliance on that argument can result in civil and criminal penalties.

The claim that “[i]ncome taxation, tax withholding, or the assessment or collection of tax is a ‘taking’ of property without due process of law or just compensation in violation of the Fifth Amendment” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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Withholding of income tax from wages without consent and without any court order is a deprivation of property without due process contrary to the 5th Amendment to the constitution.

It is sometimes argued that the withholding of income tax is a denial of due process, because the taxpayer does not have any opportunity to contest the tax before it is withheld. This argument is not as silly as some others, because it does seem strange that the government can take money without any chance for the taxpayer to challenge the taking. However, the U.S. Supreme Court has held that in at least certain kinds of cases (such as taxes), the government can take property without giving the owner of the property a hearing IF the government provides an “adequate” post-deprivation procedure to challenge the taking.

“Where, as here, adequate opportunity is afforded for later judicial determination of the legal rights, summary proceedings to secure prompt performance of pecuniary obligations to the government have been consistently sustained.” Phillips v. Commissioner, 283 U.S. 589, 595 (1931), (sustaining procedure requiring transferees of property of corporation to pay taxes owed by corporation without prior judicial review).

This principle was most recently sustained by the Supreme Court in Fuentes v. Shevin, 407 U.S. 67, 92 at n. 24 (1972), (sustaining seizure of property involved in drug trafficking without prior judicial review).

So the constitutionality of withholding has been uniformly upheld, even though the taxpayer has no way to obtain a judicial review of the withholding before it occurs.

“It is well-settled that withholding income tax from wages does not violate the constitution.”

Beerbower v. Commissioner of Internal Revenue, 787 F.2d 588 (6th Cir. 1986).

See also, Edgar v. Inland Steel Co., 744 F.2d 1276 (7th Cir. 1984); Robinson v. A & M Electric, Inc., 713 F.2d 608 (10th Cir. 1983); Stonecipher v. Bray, 653 F.2d 398 (9th Cir. 1981), cert. den. 454 U.S. 1145 (1982); Campbell v. Amax Coal. Co., 610 F.2d 701 (10th Cir. 1979); Rowlee v. Commissioner, 80 T.C. 1111 (1983); Abney v. Campbell, 105 F. Supp. 740 (N.D. Tex. 1952), aff’d 206 F.2d 836 (5th Cir. 1953), cert. den. 346 U.S. 924 (1954); United States v. Smith, 484 F.2d 8 (10th Cir. 1973), cert. den. 415 U.S. 978 (1974).

In Rev. Rul. 2005-19, 2005-14 I.R.B. 819, the IRS confirmed that the argument that the federal income tax violates the due process clause of the 5th Amendment is “frivolous,” citing the opinion of the Supreme Court in Phillips v. Commission (see above), and that reliance on that argument can result in civil and criminal penalties.

The claim that “[i]ncome taxation, tax withholding, or the assessment or collection of tax is a ‘taking’ of property without due process of law or just compensation in violation of the Fifth Amendment” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

In the same notice, the claim that “[a]n employer is not legally obligated to withhold income or employment taxes on employees’ wages” was also identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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You cannot be required to file an income tax return because a tax return is a form of testimony and the 5th Amendment guarantees that you cannot be compelled to testify against yourself.

The 5th Amendment applies to criminal proceedings, not civil proceedings, and collecting taxes is a civil proceeding, not a criminal proceeding. You cannot refuse to file an income tax return because of the 5th Amendment.

The 5th Amendment states (in part) that “No person ... shall be compelled in any criminal case to be a witness against himself....” However, you can be compelled to testify against yourself in a civil case. For example, O.J. Simpson could not be compelled to testify in the criminal case against him, so he never took the witness stand during his murder trial. But in the civil action brought against him by the Goldman family for the same murders, he was called to the stand by the Goldman family, required to testify, and found financially liable for the killings.

Because the 5th Amendment does not apply to civil liabilities, the courts have consistently ruled that you cannot refuse to file an income tax return by reason of the 5th Amendment.

In Sullivan v. United States, 274 U.S. 259 (1927), rev’g 15 F.2d 809, the defendant had earned illegal profits from the sale of alcohol (during Prohibition), failed to file an income tax return reporting the illegal profits, and was convicted of willfully failing to file an income tax return. The Circuit Court of Appeals held that to require a return on illegally earned income would be a violation of the 5th Amendment, but the Supreme Court reversed, holding that illegally earned income is still taxable, and that:

“As the defendant’s income was taxed, the statute of course required a return. [Citation omitted.] In the decision [by the lower court] that this was contrary to the Constitution we are of opinion that the protection of the Fifth Amendment was pressed too far. If the form of return provided called for answers that the defendant was privileged from making he could have raised the objection in the return, but could not on that account refuse to make any return at all. We are not called on to decide what, if anything, he might have withheld. Most of the items warranted no complaint. It would be an extreme if not an extravagant application of the Fifth Amendment to say that it authorized a man to refuse to state the amount of his income because it had been made in crime. But if the defendant desired to test that or any other point he should have tested it in the return so that it could be passed upon. He could not draw a conjurer’s circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law.”

Sullivan v. United States, 274 U.S. 259, 263-264 (1927).

Federal courts have since followed the Sullivan decision in holding that the 5th Amendment does not allow a taxpayer to refuse to file a return:

“The statutory requirement to file an income tax return does not violate a taxpayer’s right against self-incrimination.”

United States v. MacLeod, 436 F.2d 947, 951 (8th Cir. 1971), cert. den. 402 U.S. 907 (1971).

“It is well settled that the Fifth Amendment general objection [to filing a proper tax return] is not a valid claim of the constitutional privilege.”

Betz v. United States, 753 F.2d 834, 835 (10th Cir. 1985)

“The Fifth Amendment does not serve as a defense for failing to make any tax return....”

United States v. Stillhammer, 706 F.2d 1072, 1076-77 (10th Cir. 1983)

“[I]t is an illegal effort to stretch the Fifth Amendment to include a taxpayer who wishes to avoid filing a return.”

United States v. Brown, 600 F.2d 248, 251-52 (10th Cir. 1979)

“[I]t is well established that the Fifth Amendment cannot be stretched so far as to absolve a taxpayer’s duty to file a return.”

United States v. Irwin, 561 F.2d 198, 201 (10th Cir. 1977)

“Plaintiff next argues the filing of a return violates his Fifth Amendment right against self-incrimination. [Footnote omitted.] He relies on Garner v. United States, 424 U.S. 649 (1976). There, the Court held one may invoke the Fifth Amendment as to tax returns that would incriminate one for specific non-tax crimes, provided the privilege was claimed on the return. It does not stand for the proposition that the Fifth Amendment provides general protection against filing tax returns. Indeed, the Court reiterated the long-standing principle that the Fifth Amendment is not a defense to filing a return at all. Id. at 650, citing, United States v. Sullivan, 274 U.S. 259 (1927). In Brennan v. Commissioner of Internal Revenue, 752 F.2d 187, 189 (6th Cir. 1985), the Sixth Circuit held the blanket assertion of the Fifth Amendment privilege as to tax returns is a “frivolous position””

Tornichio v. United States, 81 AFTR2d 98-582, KTC 1998-71 (N.D.Ohio 1998), (suit for refund of frivolous return penalties dismissed and sanctions imposed for filing a frivolous refund suit), aff’d 1999 U.S. App. LEXIS 5248, 99-1 U.S. Tax Cas. (CCH) ¶50,394, 83 AFTR2d 99-579, KTC 1999-147 (6th Cir. 1999), (with sanctions imposed for filing a frivolous appeal).

“Plaintiffs provided no information on the numbered lines of their 1982 Form 1040 and provided wage and tax statements for 1980 instead of those for 1982. They claim that the government compelling them to provide the information requested on the form violates their right against self-incrimination guaranteed by the fifth amendment. This claim likewise is without merit. ... “The Supreme Court has held that the fifth amendment privilege against self-incrimination can be invoked only where an individual ‘is confronted by substantial and “real,” and not merely trifling or imaginary, hazards of incrimination.’ Marchetti v. United States, 390 U.S. 39, 53, 88 S. Ct. 697, 19 L. Ed. 2d 889 (1968). See also United States v. Apfelbaum, 445 U.S. 115, 128, 63 L. Ed. 2d 250, 100 S. Ct. 948 (1980). The Eighth Circuit has also specifically held that the privilege does not excuse a taxpayer’s blanket refusal to answer any questions on his tax return relating to income without some reasonable showing as to how such disclosure could possibly incriminate him. United States v. Daly, 481 F.2d 28 (8th Cir.), cert. denied, 414 U.S. 1064, 38 L. Ed. 2d 469, 94 S. Ct. 571 (1973). Plaintiffs’ purely hypothetical claim does not meet this standard and thus has no basis in law. As such, it is not a valid fifth amendment claim at all and is among those positions taken by tax protestors that have long been labeled ‘frivolous’ by the courts.”

House v. United States, 593 F. Supp. 139, 1984 U.S. Dist. LEXIS 24565, 84-2 U.S. Tax Cas. 9745, 54 AFTR2d 5903 (D.C. W.D.Mich. 1984).

See also, United States v. Neff, 615 F.2d 1235, 1239 (9th Cir. 1980), cert. den. 447 U.S. 925; Parker v. Commissioner, 724 F.2d 469 (5th Cir. 1984); United States v. Daly, 481 F.2d 28 (8th Cir. 1973), cert. den. 414 U.S. 164 (1973); Ueckert v. Commissioner, 721 F.2d 248, 250 (8th Cir. 1983); United States v. Porth, 426 F.2d 519 (10th Cir. 1970), cert. den. 400 U.S. 824; Boomer v. United States, 755 R2d 696, 697 (8th Cir. 1985).

Having said all that, there are at least two ways in which the 5th Amendment can be relevant to tax returns.

As the Supreme Court recognized in Sullivan, you cannot be compelled to disclose criminal activity on a tax return. For example, if you are sell heroin or cocaine, you are required to report your income from your illegal sales, but you are not required to describe your illegal activities, or provide any other information that might incriminate you. (You could describe your income simply as “income from sales” without describing what you are selling.) If you choose to identify your occupation or the nature of your sales, that information can be used against you. (In Garner v. United States, 424 U.S. 648 (1976), the defendant identified himself as a “gambler” on his tax return, and that information was ruled to be admissible against him in a criminal trial for illegal gambling activities.)

If you fail to file a return, or file a fraudulent return, the government cannot compel you to testify or provide information that could be used against you in the criminal tax case arising out of the failure to file or the fraudulent return. In other words, the 5th Amendment does not prevent the government from requiring you to file a return or from prosecuting you if you fail to file, but it does prevent the government from compelling you to provide information to help with your own conviction after you have failed to file.

The government can compel you to provide tax records (or testimony) that may be needed to determine your correct tax liability. In order properly to assert a 5th Amendment privilege when asked for tax records or tax information, a taxpayer must show that the requested testimony would “support a conviction under a federal criminal statute” or “furnish a link in the chain of evidence needed to prosecute the claimant for a federal crime.” United States v. Rendahl, 746 F.2d 553, 555 (9th Cir. 1984) (quoting Hoffman v. United States, 341 U.S. 479, 486 (1951). Indeed, it is enough if the responses would merely “provide a lead or clue” to evidence having a tendency to incriminate. United States v. Neff, 615 F.2d 1235, 1239 (9th Cir.)(quoting Hashagen v. United States, 283 F.2d 345, 348 (9th Cir. 1960)), cert. denied, 447 U.S. 925 (1980). However, the privilege is validly invoked only where there are “substantial hazards of self-incrimination” that are “real and appreciable,” not merely “imaginary and unsubstantial.” United States v. Rendahl, 746 F.2d 553, 555 (9th Cir. 1984) (quoting United States v. Neff, 615 F.2d 1235, 1239 (9th Cir.). See United States v. Troescher, 99 F.3d 933, KTC 1996-523 (9th Cir. 1996), for an example of a court applying these principles to a refusal to respond to an IRS summmons.

However, there are some consequences to claiming the 5th Amendment privilege that tax litigants sometimes overlook.

The rule in a criminal case is that, if a defendant asserts the 5th Amendment and refuses to testify, that refusal cannot be used against the defendant. The same rule does not apply in tax cases or other civil litigation. If you challenge a tax assessment by the Internal Revenue Service and then refuse to testify on 5th Amendment grounds, the court may assume that your testimony would have been adverse to your position and may make inferences from your refusal to testify, provided that there is some independent evidence in addition to the mere invocation of the privilege upon which to base the negative inference. Baxter v. Palmigiano, 425 U.S. 308 (1976).

A civil litigant is free to invoke his Fifth Amendment privilege on an issue, but once invoked to oppose discovery, the privilege cannot be tossed aside to support a party’s assertions during trial or during summary judgment proceedings. S.E.C. v. Zimmerman, 854 F.Supp. 896 (N.D.Ga. 1993) (citations omitted). Generally then, documents and information withheld by a party on the basis of Fifth Amendment privilege are inadmissible to both parties at trial and during summary judgment. A litigant thus faces the dilemma of choosing silence or presenting a defense. United States v. Rylander, 460 U.S. 752, 759 (1983); Williams v. Florida, 399 U.S. 78, 83-84 (1970).

In enacting an assessable penalty for “frivolous income tax returns,” I.R.C. section 6702, Congress specifically identified 5th Amendment arguments as “frivolous” arguments, and courts have upheld fines against tax protesters who have failed to file income tax returns on 5th Amendment grounds.

In Rev. Rul. 2005-19, 2005-14 I.R.B. 819, the IRS confirmed that refusing to file a federal income tax return based on a claim of 5th Amendment privilege is “frivolous” and can result in civil and criminal penalties.

The claim that “[t]he Fifth Amendment privilege against self-incrimination grants taxpayers the right not to file returns or the right to withhold all financial information” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Related topics:

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The IRS cannot require anyone to file an income tax return because that would be a violation of our 4th Amendment rights against unreasonable searches and seizures.

The 4th Amendment prohibits unreasonable searches and seizures, and requires that search warrants be supported by probable cause. But requiring that tax returns be filed is not violation of the 4th Amendment.

The Supreme Court has held that the requirement for filing ordinary and reasonable returns does not violate a taxpayer’s protection against unreasonable search and seizure under the 4th Amendment.

“It is urged in a number of the cases that in a certain feature of the statute there is a violation of the 4th Amendment of the Constitution, protecting against unreasonable searches and seizures. ... Certainly the amendment was not intended to prevent the ordinary procedure in use in many, perhaps most, of the states, of requiring tax returns to be made, often under oath.” Flint v. Stone Tracy Co., 220 U.S. 107, 175 (1911).

And the lower courts have followed the Supreme Court:

“Boozer says that he was not required to file a tax return until the Government obtained a court order requiring him to file. This argument hinges on the assumption that 26 U.S.C. section 6012’s directive to ‘make’ a tax return is not a requirement to ‘file’ a tax return. Boozer maintains that the Tax Court’s rejection of this assumption and holding that he was required to file a tax return despite the absence of a court order directing him to file contravened the Fourth Amendment.

“Boozer’s argument lacks merit. We have construed section 6012’s requirement to ‘make’ a tax return as a requirement to ‘file’ a tax return. See Moore v. CIR, 722 F.2d 193, 196 (5th Cir. 1984) (observing that the taxpayer has an ‘obligation to file established by 26 U.S.C. section 6012’); Steinbrecher v. CIR, 712 F.2d 195, 198 (5th Cir. 1983) (per curiam) (’section 6012(a) . . . provides that individuals meeting certain requirements shall file income tax returns.’ (emphasis deleted)); see also In re Ripley, 991 F.2d 440, 444 n. 15 (5th Cir. 1991) (indicating that section 6651(a) is a sanction for failing to comply with section 6012(a)). Additionally, we have rejected as ‘without merit’ the contention that requiring the filing of a tax return violates the Fourth Amendment. Hallowell v. CIR, 744 F.2d. 406,408 (5th Cir. 1984). ‘[T]he amendment was not intended to prevent the ordinary procedure . . . of requiring tax returns to be made, often under oath.’ Flint v. Stone Tracy Co., 220 U.S. 107, 175, 31 S. Ct. 342, 358, 55 L. Ed. 389, ____ (1911); see also White v. CIR, 72 T.C. 1126, 1130 (1979) (‘It is further established that the requirement for filing ordinary and reasonable returns and respondent’s inspection thereof, does not violate a taxpayer’s protection against unreasonable search and seizure under the Fourth Amendment.’).”

Boozer v. Commissioner, 1999 U.S. App. LEXIS 22301, 99-2 U.S. Tax Cas. 50,836, 84 A.F.T.R.2d 6008, KTC 1999-546 (5th Cir. 1999), (imposition of additions to tax for failing to file tax returns affirmed).

The claims that “[m]andatory compliance with, or enforcement of, the tax laws invades a taxpayer’s right to privacy under the Fourth Amendment” and “is an unreasonable search and seizure contrary to the Fourth Amendment” have each been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Related topics:

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An IRS levy to collect taxes without a court order is a violation of our 4th Amendment rights against unreasonable searches and seizures.

The 4th Amendment to the Constitution prohibits unreasonable searches and seizures, and requires that search warrants be supported by probable cause. But that does not mean that the IRS cannot levy on property in the hands of third parties, or sitting in plain sight.

In addressing the issue of whether the 4th Amendment required the IRS to obtain a court warrant before seizing a delinquent taxpayer’s property, the Supreme Court stated:

“The seizures of the automobiles in this case took place on public streets, parking lots, or other open places, and did not involve any invasion of privacy. In Murray’s Lessee v. Hoboken Land & Improv. Co., 18 How. 272 (1856), this Court held that a judicial warrant is not required for the seizure of a debtor’s land in satisfaction of a claim of the United States. The seizure in Murray’s Lessee was made through a transfer of title which did not involve an invasion of privacy. The warrantless seizures of the automobiles in this case are governed by the same principles and therefore were not unconstitutional.”

G.M. Leasing Corp. v. United States, 429 U.S. 338, 351-352 (1977).

However, in the same case the Supreme Court held that a warrant was required to seize books and records in a business office, stating that “except in certain carefully defined classes of cases, a search of private property without proper consent is `unreasonable’ unless it has been authorized by a valid search warrant.” 429 U.S. at 352-353.

It therefore follows that the only times the IRS needs a court order to carry out a levy is when the IRS agents need to enter a private home or business to carry out the seizure the property.

And that’s what the lower courts have held:

“In applying the Fourth Amendment to IRS seizures of taxpayers’ property, the Supreme Court indicates that the key issue is whether the seizure involves an invasion of privacy.”

Maisano v. Welcher, 940 F.2d 499, 502-03 (9th Cir. 1991).

“Fourth Amendment case law states that a warrant is not required for the seizure of property in satisfaction of a tax claim by the Internal Revenue Service.”

Nelson v. Silverman, 888 F.Supp. 1041, 1046 (S.D.Cal. 1995).

“Fourth Amendment protections apply in the IRS tax collection context only when the property sought by levy is unobtainable without an intrusion of privacy. [Citations omitted.] Since the Notice of Levy in this case was served on Petitioners employer, Petitioner had no reasonable expectation of privacy and the Fourth Amendment warrant requirement is therefore not implicated.”

James A. Marranca v. United States IRS, 2009 U.S. Dist. LEXIS 27831, No. 07-CV-859S (W.D. N.Y. 3/31/2009) (denying a petition to quash an IRS notice of levy on wages that was served on the petitioner’s employer).

See also, Cameron v. I.R.S., 593 F.Supp. 1540, 1554 (D.C. Ind. 1984) (holding that no invasion of privacy occurred for Fourth Amendment purposes where wages were “levied when neither in plaintiff’s private possession nor subject to his private control”).

Related topics:

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Receipt of Federal Reserve Notes is not “income” because Federal Reserve Notes are not lawful money (“coins in gold or silver”) within the meaning of the constitution.

Although tax protesters and other critics of modern banking like to claim only gold and silver can be “money,” there is no such limitation in the Constitution. Article I, Section 10 of the Constitution states that “No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts ...,” but Article I, Section 8, Clause 5 states that Congress shall have the power “To coin Money, regulate the Value thereof, and of foreign Coin,” with no mention of any restriction to gold or silver. This difference has been clearly recognized by the U.S. Supreme Court:

“The constitutional authority of Congress to provide a currency for the whole country is now firmly established ... By the constitution of the United States, the several states are prohibited from coining money, emitting bills of credit, or making anything but gold or silver a tender of payment of debts. But no intention can be inferred from these to deny to Congress either of these powers.... Under the power to borrow money on the credit of the United States, and to issue circulating notes for the money borrowed, its powers to define the quality and force of those notes as currency is as broad as the like power over a metallic currency under the power to coin money and to regulate the value thereof. Under the two powers, taken together, Congress is authorized to established a national currency, either in coin or in paper and to make the currency lawful money for all purposes, as regards the national government or private individuals.”

Juilliard v. Greenman, 110 U.S. 421, 446 (1884).

How do courts respond when taxpayers claim that the receipt of federal reserve notes is not “income”?

“Plaintiffs further seek an injunction against the Internal Revenue Service (‘IRS’) to prevent tax collection activities on federal reserve notes, contending that federal reserve notes are not lawful money of the United States ‘as defined and intended by the spirit of the Constitution’ and that Congress has violated the separation of powers doctrine by issuing federal reserve notes which are not redeemable in coin, thereby rendering federal reserve notes ‘counterfeit securities.’ ... Plaintiffs are incorrect.

“The contention that paper money is illegal has been consistently rejected. [Citations omitted.]

“Congress has exercised this power [to establish a national currency] by delegation to the federal reserve system. 12 U.S.C. section 411. Federal reserve notes are legal tender for all debts, including taxes. 31 U.S.C. section 392; Milam v. U.S. 524 F.2d 629 (9th Cir. 1974). The United States Constitution, art. 1, section 10, ‘prohibits the states from declaring legal tender anything other than gold or silver, but does not limit Congress’ power to declare what shall be legal tender for all debts.’ U.S. v. Rifen, 577 F.2d 1111,1112 (8th Cir. 1978). Since Congress has done so, there can be no valid challenge to the legality of federal reserve notes. United States v. Anderson, 584 F.2d 369, 374 (10th Cir. 1978).”

Wilson v. United States of America, 81 AFTR2d ¶98-785 (D.Col. 1998).

In United States v. Daly, 481 F.2d 28 (8th Cir. 1973), the court affirmed a conviction for willfully failing to file income tax returns, describing the argument that “the only ‘Legal Tender Dollars’ are those which contain a mixture of gold and silver and that only those dollars may be constitutionally taxed” as “clearly frivolous.”

See also, Guaranty Trust Co. v. Henwood, 307 U.S. 247 (1939); Norman v. Baltimore & Ohio R. Co., 294 U.S. 240 (1935); United States v. Kelley, 539 F.2d 1199 (9th Cir. 1976), cert. den. 429 U.S. 963 (1976); United States v. Wangrud, 533 F.2d 495 (9th Cir. 1976), cert. den. 429 U.S. 818; United States v. Daly, 481 F.2d 28 (8th Cir. 1937), cert den. 414 U.S. 1064 (1973); Cupp v. Commissioner, 65 T.C. 68 (1975), aff’d 559 F.2d 1207 (3rd Cir. 1975); United State v. Porth, 426 F.2d 519 (10th Cir. 1970), cert. den. 400 U.S. 824 (1970); See also, United States v. Condo, 741 F.2d 238, 239 (9th Cir. 1984) (affirming criminal conviction for tax fraud and rejecting as “frivolous” the argument that Federal Reserve Notes are not valid currency, cannot be taxed, and are merely “debts”); United States v. Rickman, 638 F.2d 182, 184 (10th Cir. 1980) (affirming criminal conviction for willfully failing to file a return and rejecting the taxpayer’s argument that “the Federal Reserve Notes in which he was paid were not lawful money within the meaning of Art. 1, section 8, United States Constitution”).

For more information on the federal reserve system, see Debunking the Federal Reserve Conspiracy Theories by Edward Flaherty.

The claim that “Federal Reserve Notes are not taxable income when paid to a taxpayer because they are not gold or silver and may not be redeemed for gold or silver” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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The establishment of a “Pure Trust” can protect income and earnings from income tax, because a trust is a form of contract and is therefore protected from impairment by the contract clause of the Constitution.

There are all sorts of problems with this particular piece of nonsense.

The argument is based on Article I, Section 10, clause 1 of the Constitution, which states that “No State shall ... pass any ... Law impairing the Obligation of Contracts....”

An immediate problem is that this clause refers to the states, and the United States government “is not within the constitutional prohibition which prevents states from passing laws impairing the obligations of contracts....” Sinking Fund Cases, 99 U.S. 700, 718 (1878). See also, New York v. United States, 257 U.S. 591, 601 (1922); Legal Tender Cases, 79 U.S. 457, 549-551 (1870).

Another problem is that the imposition of a tax is usually not considered to be an “impairment” of a contract.

The idea that a tax impairs a contract was first rejected by the U.S. Supreme Court in Providence Bank v. Billings, in which the plaintiffs complained that a tax on banks imposed by the state of Rhode Island was an “impairment” of the charter granted by the state to the bank. After noting that there was nothing in the charter that expressly limited the power of Rhode Island to tax the bank, Chief Justice Marshall pointed out that:

“If the power of taxation is inconsistent with the charter, because it may be so exercised as to destroy the object of which the charter is given; it is equally inconsistent with every other charter, because it is equally capable of working the destruction of the objects for which every other charter is given. If the grant of a power to trade in money to a given amount, implies an exemption of the stock in trade from taxation, because the tax may absorb all the profits; then the grant of any other thing implies the same exemption; for that thing may be taxed to an extent which will render it totally unprofitable to the grantee. Land, for example, has, in many, perhaps in all the states, been granted by government since the adoption of the constitution. This grant is a contract, the object of which is that the profits issuing from is shall enure to the benefit of the grantee. Yet the power of taxation may be carried so far as to absorb these profits. Does this impair the obligation of the contract? The idea is rejected by all; and the proposition appears so extravagant, that it is difficult to admit any resemblance in the cases.”

Providence Bank v. Billings, 29 U.S. 514, 562 (1830).

Chief Justice Marshall recognized that, if this particular contract were exempt from tax, then all contracts must be exempt from tax, which would lead to the conclusion that almost nothing could be taxed because almost everything is created or acquired by contract in one way or another.

Later Supreme Court decisions have also recognized that the taxation of contractual transactions, or the profits from contracts, is not the same as an impairment of the contract within the meaning of the Constitution.

“Authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution, even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense.” North Missouri Railroad v. Maguire, 87 U.S. (Wall) 46, 61 (1873).

(Although a tax may be an impairment of a contract if the state itself is under a contractual obligation not to impose the tax. See, e.g., North Missouri Railroad v. Maguire, supra.)

And, even if a tax on trust income could be considered an “impairment” of the trust contract, it could only be an impairment of an existing contract. Trusts that have been created after the enactment of the income tax could still be taxed because the tax was in place before the trust was created.

And tax protesters are not just wrong about the constitutionality of the income tax as applied to trusts, but also ignore (or attempt to evade) a number of other issues.

In many cases, tax protesters have attempted to assign their own wages or salaries to trusts, claiming that the income is the income of the trust and not the wage earner’s. This violates a fundamental principle of taxation, which is that earned income (wages, salaries, and other compensation for services) is always taxable to the person that earned the income, and any attempt to assign income before it is earned will be ineffective for income tax purposes even though valid under state law. Lucas v. Earl, 281 U.S. 111 (1930); United States v. Bayse, 410 U.S. 441 (1937).

There are also specific statutory rules in the Internal Revenue Code that require the grantor of a trust to report and pay taxes on the income of trusts created by the grantor for his or her own benefit, or if the grantor continues to control the income of the trust. So, for example, section 677 of the Internal Revenue Code states that the grantor shall be considered to be the owner of any trust for federal income tax purposes (meaning that the trust is disregarded) if the grantor continues to receive the income from the trust, or the income is accumulated for possible distribution to or for the benefit of the grantor (or the grantor’s spouse). See United States v. Krall, 835 F.2d 711, 714 (8th Cir. 1987); United States v. Buttorff, 761 F.2d 1056, 1060-61 (5th Cir. 1985); Vnuk v. Commissioner, 621 F.2d 1318 (8th Cir. 1980); Rev. Rul. 75-257, 1975-2 C.B. 251.

Furthermore, income is ordinarily taxed to the person who earned it, and tax liability may not be shifted by assigning the income to another person. Commissioner v. Culbertson, 337 U.S. 733, 739-740 (1949); Helvering v. Eubank, 311 U.S. 122 (1940); Lucas v. Earl, 281 U.S. 111 (1930). The taxpayer is taxable on assigned income even if the income is paid directly to a trust. Wheeler v. United States, 768 F.2d 1333 (Fed. Cir. 1985); Saunders v. Commissioner, 720 F.2d 871 (5th Cir. 1983); Armantrout v. Commissioner, 67 T.C. 996 (1977), aff’d, 570 F.2d 210 (7th Cir. 1978). So assignments of wages and salaries to a trust are not valid for federal income tax purposes.

But most tax protesters do not lose in court because they are wrong about the Constitution or the Internal Revenue Code. Most lose because the courts will simply not recognize a trust that has no real economic existence. The courts have held that a trust will be considered a “sham” and disregarded for federal income tax purposes if the creation of the trust has no real economic effect and alters no economic relationships, and that this rule applies even if the trust is recognized under state law. See, for example, Zmuda v. Commissioner, 73 T.C. 1235, 1241 (1982), aff’d 731 F.2d 1417 (9th Cir. 1984); Holman v. United States, 728 F.2d 462 (10th Cir. 1984); O’Donnell v. Commissioner, 726 F.2d 679 (11th Cir. 1984); Hanson v. Commissioner, 696 F.2d 1232 (9th Cir. 1983), affg. T.C. Memo. 1981-675; Schulz v. Commissioner, 686 F.2d 490 (7th Cir. 1982), affg. T.C. Memo. 1980-568; Vnuk v. Commissioner, 621 F.2d 1318 (8th Cir. 1980), affg. T.C. Memo. 1979-164; Wesenberg v. Commissioner, 69 T.C. 1005 (1978); Markosian v. Commissioner, 73 T.C. 1235 (1980). This rule applies regardless of whether the entity has a separate existence recognized under state law (see Furman v. Commissioner, 45 T.C. 360 (1966), affd. per curiam 381 F.2d 22 (5th Cir. 1967)), and regardless of the form of the entity, such as a trust or common law business trust. See Zmuda v. Commissioner, 731 F.2d 1417 (9th Cir. 1984). In all these cited cases, “family trusts” were set up using forms, materials, and step-by-step instructions bought from promoters of trust schemes, and the parties attempted to avoid all income taxes by transferring both their properties and their future earnings to the trusts, which they then controlled as trustees, and from which they were entitled to all the income. As is typical of “pure” or “constitutional” trusts, the taxpayers claimed to transfer title to the income and property to the trust, but as a practical matter the taxpayers continue to use the property and spend the income, making it very easy for the courts to find that the trust is a “sham” and “without real economic effect” and to disregard the existence of the trust.

Because of all of these defects in the claims of tax protesters, the courts are very tired of claims relating to “common law trusts.” In Dahlstrom v. United States, T.C. Memo. 1991-264, the Tax Court not only imposed tax deficiencies upon the taxpayers (who also promoted and sold seminars and tax shelters advocating the use of trusts to avoid income taxes) for all of the income for all of their trusts, but also affirmed the imposition of a penalty for civil fraud.

The Internal Revenue Service has issued a notice (Notice 1997-24) and a new publication (“Too Good to be True Trusts,” Publication 2193) for taxpayers warning them of these kinds of “abusive trust arrangements,” and has announced increasing the enforcement staff assigned to detect and prosecute these kinds of fraud. As a result of these increased efforts, the IRS reported 31 convictions for trust-related tax frauds during fiscal 2000 and 45 convictions during fiscal 2001. See “Summary of Abusive Trust Schemes” prepared by the Criminal Investigation division of the Internal Revenue Service. The IRS has also ruled that taxpayers cannot avoid taxes by assigning their incomes to trusts, or by claiming deductions for “fiduciary fees,” and that taxpayers relying on those assignments or deductions may incur civil or criminal penalties. Rev. Rul. 2006-19, 2006-15 IRB 1.

The claim that “[t]axation of income attributed to a trust, which is a form of contract, violates the constitutional prohibition against impairment of contracts” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

In the same notice, the claim that “[a] taxpayer may avoid tax on income by attributing the income to a trust, including the argument that a taxpayer can put all of the taxpayer’s assets into a trust to avoid income tax while still retaining substantial powers of ownership and control over those assets or that a taxpayer may claim an expense deduction for the income attributed to a trust, or similar arguments described as frivolous in Rev. Rul. 2006-19, 2006-15 I.R.B. 749” was also identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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Under the 1st Amendment, there is a right to withhold taxes from the government until the government has answered a “petition for the redress of grievances.”

This is an argument touted by the “We the People Foundation,” and it rests entirely on one sentence in a communication from the Continental Congress to the Province of Quebec that was written before the Declaration of Independence:

“If money is wanted by Rulers who have in any manner oppressed the people, they may retain it until their grievances are redressed; and thus peaceably procure relief, without trusting to despised petitions or disturbing the public tranquility.”

“Appeal to the Inhabitants of Quebec” (1774), Journals of Continental Congress, Volume I, pages 105-113.

However, this at least somewhat novel argument by “We the People” was rejected in federal court, the court stating:

“Plaintiffs contend that they therefore have a constitutional right to a response to the petitions they have filed with the various defendants, and that defendants have committed constitutional torts against plaintiffs in failing to respond to their petitions. See Pl. Opposition to Def. Motion to Dismiss (‘Pl. Opp.’) at 9-10. The Supreme Court, however, has held that ‘the First Amendment does not impose any affirmative obligation on the government to listen, to respond or, in this context, to recognize the association and bargain with it.’ See Smith v. Ark. State Highway Employees, Local 1315, 441 U.S. 463, 465 (1979). Plaintiffs’ claims that the defendants are obligated to ‘properly’ respond to plaintiffs’ petitions shall thus be dismissed for failure to state a claim upon which relief may be granted.”

We the People Foundation for Constitutional Education, Inc. v. United States, 2005 TNT 174-17, No. 04-1211 (U.S.D.C. D.C. 8/31/2005), affirmed 2007 TNT 90-9, No. 05-5359 (D.C. Cir. 5/8/2007). In affirming the dismissal of the suit, the D.C. Circuit stated:

“We agree with the Government that the Anti-Injunction Act precludes plaintiffs’ second claim -- related to collection of taxes. [Citation omitted.] In asserting that claim, plaintiffs seek to restrain the Government’s collection of taxes, which is precisely what the Anti-Injunction Act prohibits, notwithstanding that plaintiffs have couched their tax collection claim in constitutional terms.”

We the People Foundation, Inc. v. United States, 2007 TNT 90-9, No. 05-5359 (D.C. Cir. 5/8/2007). The court also reached the merits of the constitutional issue as it related to non-tax grievances, stating that:

“Plaintiffs contend that the First Amendment guarantees a citizen’s right to receive a government response to or official consideration of a petition for redress of grievances. Plaintiffs’ argument fails because, as the Supreme Court has held, the First Amendment does not encompass such a right. See Minn. State Bd. for Cmty. Colls. v. Knight, 465 U.S. 271, 283, 285 (1984); Smith v. Arkansas State Highway Employees, 441 U.S. 463, 465 (1979).”

We the People Foundation, Inc. v. United States, 2007 TNT 90-9, No. 05-5359 (D.C. Cir. 5/8/2007).

The claim that “[a] taxpayer may withhold payment of taxes or the filing of a tax return until the Service or other government entity responds to a First Amendment petition for redress of grievances” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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Under the 1st Amendment, there is a right to withhold taxes from the government that are used for wars or other purposes that violate the religious beliefs of the taxpayer.

I include this argument with some reluctance, because there are many very sincere people, with very deep-felt religious beliefs, who refuse to pay taxes that support wars, and I do not like lumping them together with the delusional misfits who make the other arguments included in this FAQ. However, the IRS has included the 1st Amendment argument in its list of frivolous arguments, and it is a question that often asked, so it is included in this FAQ.

The possibility of objecting to the payment of taxes on religious grounds was pretty much eliminated by the U.S. Supreme Court in United States v. Lee, 455 U.S. 252, 261 (1982), which the court upheld the constitutionality and uniform application of the Social Security Act, which requires employers to withhold social security taxes from employees’ wages, even when such withholding conflicts with an employer’s or employee’s religious or other beliefs.

“Although we do not doubt the sincerity of petitioner’s religious convictions, we conclude that his legal arguments are without merit. It is well settled that the collection of tax revenues for expenditures that offend the religious beliefs of individual taxpayers does not violate the Free Exercise Clause of the First Amendment.”

Jenkins v. Commissioner, 2007 TNT 46-8, No. 05-4756 (2nd Cir. 3/7/2007) (affirming a Tax Court decision against a Quaker, including the imposition of a $5,000 penalty for frivolous arguments).

See also, Browne v. United States, 176 F.3d 25 (2d Cir. 1999) (holding that taxpayers cannot withhold the portion of their taxes which they calculate will be allocated for military purposes); Adams v. Commissioner, 170 F.3d 173 (3d Cir. 1999) (holding that the government need not accommodate taxpayers whose religious beliefs lead them to oppose military funding); United States v. Ramsey, 992 F.2d 831, 833 (8th Cir. 1993) (holding that the First Amendment does not afford a right to avoid federal income taxes on religious grounds); Jenney v. United States, 755 F.2d 1384 (9th Cir. 1985) (holding that taxpayers cannot withhold taxes based on conscientious objection to war); Lull v. Commissioner, 602 F.2d 1166, 1169 (4th Cir. 1979).

The position that “the First Amendment permits a taxpayer to refuse to pay taxes based on religious or moral beliefs” has been identified by the IRS as “frivolous” in Notice 2007-30, 2007-14 I.R.B. 883 (4/2/2007). So taking a position on a tax return, or asking for a collection due process hearing, to assert religious beliefs could result in a penalty of $5,000. (Although the IRS has to give the person an opportunity to withdraw the return or submission before it can impose the penalty.)

There may be a difference between (a) refusing to pay a tax as an act of civil disobedience (i.e., without claiming that penalties should not apply) and (b) claiming that the first amendment allows you to refuse to pay the tax without penalty (which the IRS says is frivolous). But refusing to pay a tax as an act of conscientious objection, without claiming any constitutional or other legal support for the objection, could be a willful refusal to pay the tax, would could as a misdemeanor by up to one year in jail and a $25,000 fine. 26 U.S.C. 7203. However, it is difficult to find any case in which the government has criminally prosecuted someone who has refused to pay because of religious beliefs.

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Any assessment or collection of any tax without a trial by jury is a violation of the 7th Amendment.

Not at all, and for at least three different reasons.

The 7th Amendment states:

In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

Notice the words “suits at common law”? Those words have a very specific meaning, which is to the system of judge-made law that arose in England (and is still used in England and every state of the United States except Louisiana--which has a “civil law” tradition based on French and not English law). In England at the time the 7th Amendment to the Constitution was written and ratified, “suits at common law” meant civil lawsuits (not criminal actions) for the recovery of monetary damages because of personal injuries, damage to property, or breach of contract. It did not include actions “in equity” for injunctions or other “specific relief” not requiring the payment of money (because actions “in equity” were traditionally decided by a judge without a jury) or to legal actions created by statute (because the legislature in creating the new legal action could specify whether or not a jury trial was required).

Because there was no right to challenge tax collection by a “suit at common law,” the 7th Amendment does not apply, and this has been confirmed by the Supreme Court in Wickwire v. Reinecke, 275 U.S. 101 (1927), and Phillips v. Commissioner, 283 U.S. 589 (1931).

The Supreme Court has also stated that there is no 7th Amendment right to a jury trial in civil litigation against the United States because of the doctrine of sovereign immunity. McElrath v. United States, 102 U.S. (12 Otto) 426, 440 (1880); see also Atlas Roofing Co. v. OSHRC, 430 U.S. 442, 450-51 (1977); Lehman v. Nakshian, 453 U.S. 156, 160 (1981) (“It has long been settled that the Seventh Amendment right to trial by jury does not apply in actions against the Federal Government.” ).

So there is no constitutional (or statutory) right to a trial by jury in Tax Court. Coleman v. Commissioner, 791 F.2d 68 (7th Cir. 1986); Parker v. Commissioner, 724 F.2d 469, 472 (5th Cir.1984); Funk v. Commissioner, 687 F.2d 264, 266 (8th Cir.1982).

Several Circuit Courts have also ruled that the denial of jury trial in Tax Court is constitutional because the taxpayer has a choice. If the taxpayer really wants a trial by jury, the taxpayer can pay the disputed tax and then sue for a refund in federal District Court, where a trial by jury is allowed. The taxpayer therefore has a choice of remedies, and the Constitution does not require that both choices include the right to a trial by jury. See, Olshausen v. Commissioner, 273 F.2d 23 (9th Cir. 1959), cert. denied, 363 U.S. 820 (1960).

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The United States does not have “standing” to enforce the federal tax laws.

Standing is a real legal issue, and it has a constitutional dimension because the judicial power granted to federal courts by Article III of the Constitution extends only to “cases,” which the Supreme Court has interpreted to be limited to “justiciable” controversies between parties with specific legal rights at issue. The Supreme Court has therefore stated that “the standing question is whether the plaintiff has ‘alleged such a personal stake in the outcome of the controversy’ as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf.” Warth v. Seldin, 422 U.S. 490, 498-499 (1975), quoting Baker v. Carr, 369 U. S. 186, 204 (1962).

Exactly how the United States could lack standing in a tax case is completely inexplicable given the obvious interest of the government in collecting tax revenues, and yet some (apparently desperate) taxpayers have actually made that claim.

The primary proponent of this argument is an author named Marc Stevens, and he claims to have helped a taxpayer present this issue in a court proceeding opposing the enforcement of an IRS summons. Unfortunately, the taxpayer lost.

“In response to the petition [to enforce the IRS summons], Mr. Edwards has filed four motions. The first is a motion to strike the petition for lack of standing, arguing the IRS has not alleged a justiciable controversy. The motion lacks merit as the Court clearly has jurisdiction and the IRS has authority to enforce its summons as described by congress under the provisions of 26 United States Code 7402 and 7604 and as affirmed by the United States Supreme Court in the case we've been discussing all afternoon, United States versus Powell, 379 U.S. 48, 1964.”

United States v. Marc Edwards, No. 2:05-cv-00141-WFD (D. Wyo. 8/26/2005) (transcript of oral ruling), aff'd, No. 05-8085 (10th Cir. 3/27/2006) (arguments including the “lack of standing on the part of the government” rejected as “patently frivolous”; $6,000 in sanctions imposed for frivolous appeal), cert. den., No. 06-917 (U.S.S.C. 2006).

In a case in which a disgruntled taxpayer had been using various filings to try to block IRS collection efforts, as well as retaliate against IRS employees, the court stated quite broadly that:

“Without reference to any particular formulation of an injunction standard, courts have viewed the United States as having proper standing to seek injunctive relief from any actual, or threatened, interference with the performance of its proper governmental functions.”

United States v. Lerch, 82 AFTR2d Par. 98-5370, 98 TNT 193-32, KTC 1998-415, No. 1:97-CV-0035 (N.D. Ind. 1998).

In an appeal of a suit by the United States to reduce tax assessments to judgment and enforce a tax lien on real property, the 10th Circuit held that the United States had standing to bring the suit under 26 U.S.C. § 7403 and 28 U.S.C. § 1345. United States v. Dawes, 2005 TNT 234-9, No. 04-3454 (10th Cir. 12/5/2005), aff’ng 2003 TNT 175-18, KTC 2003-334, No. 03-1132 (U.S.D.C. D.Kan. 8/6/2003) (“The plaintiff [United States of America] possesses standing to sue under 28 U.S.C. section 1345....”).

No published decision has yet been found which suggests in any way that the United States might lack standing to enforce the federal tax, or to prosecute criminal violations of the tax laws.

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Statutory Fallacies

Many tax protester arguments are not based on a claim that the Internal Revenue Code is unconstitutional, but that it is not a law or is somehow written in such a way as to be inapplicable or unenforeceable. These arguments often look like constitutional arguments (and are sometimes argued so badly that it difficult to tell whether the argument is constitutional or statutory), but are somewhat different.

The Internal Revenue Code is not law.

The arguments that the Internal Revenue Code is not a valid statute are all strange, and take several different forms.

One form of argument is simply that the Internal Revenue Code was never enacted. This is easily disproved by checking the records of the U.S. Congress. The Internal Revenue Code of 1954 was passed by both houses of Congress as House Resolution 8300, and was signed by President Eisenhower on August 16, 1954, at about 9:45 a.m., becoming Public Law 83-591, 68A Stat. 3. The Internal Revenue Code is now known as the “Internal Revenue Code of 1986” as a result of changes made by Public Law 99-514, 100 Stat. 2085 (10/22/1986). More recent amendments to the Internal Revenue Code (as well as other public laws) can be found on-line through the “Thomas” web site maintained by the Library of Congress.

A brief note about citations to statutes: Public Laws are numbered consecutively within each session of Congress, each session lasting two years. The Congress that convened in January of 2001 was the 107th, so the first bill passed by that Congress and signed by the President was P.L. 107-1, the second was P.L. 107-2, and so forth. All public laws are published in the U.S. Statutes at Large, usually abbreviated “Stat.”, so a citation to “68A Stat. 3” refers to page 3 of volume 68A of the U.S. Statutes at Large. The U.S. Statutes at large can be found at most law libraries, so the text of the original Internal Revenue Code of 1954, and published proof of its enactment, can be found at any law library with a copy of the U.S. Statutes at Large.

The other argument is more subtle and more complicated. Many of the statutes of the United States have been “codified,” or reorganized into more orderly collections of statutes known as the “United States Code,” which is divided by subject matter into “titles.” As part of this codification, many statutes that were enacted separately have been reenacted together as part of the United States Code, so that the Code itself became “positive law.” For example, the statutes relating to federal courts have been organized and reenacted as Title 28 of the United States Code. So, when referring to a provision of Title 28, it is usually not necessary to worry about when or how it was enacted; all you need to do is refer to the right section of Title 28. For convenient reference, the Internal Revenue Code has been published as Title 26 of the United States Code but, technically speaking, has never been enacted as part of the United States Code. This is explained in the printed volumes of the United States Code, which states that Title 26 is evidence of the provisions of the Internal Revenue Code, but that Title 26 itself is not “positive law,” even though the revenue laws enacted by Congress (such as Public Law 83-591 enacted in 1954, or Public Law 99-514 enacted in 1986), all of which can be found in the U.S. Statutes at Large, are “positive law.”

The distinction between Title 26 of the United States Code and “positive law” is purely technical and would never be important to anyone unless the U.S. Government Printing Office made a typographical error in printing Title 26 of the United States Code, so that the United States Code did not accurately reflect the revenue laws enacted by Congress. If a typographical error did occur, then the courts would look to the U.S. Statutes at Large to determine the text of the relevant statute, instead of Title 26 of the United States Code.

So, the provisions of the Internal Revenue Code have been enacted by Congress as positive law, and the fact that the Internal Revenue Code as not been reenacted or codified as part of the United States Code is irrelevant.

What do the courts say about tax protester claims to the contrary?

“Indeed, as we have repeatedly held, the entire Internal Revenue Code was validly enacted by Congress and is fully enforceable.”

United States v. McDonald, 919 F.2d 146, 90 TNT 246-11, No. 88-5239 (9th Cir. 11/26/1990); United States v. Studley, 783 F.2d 934, 940 (9th Cir. 1986).

“Congress’s failure to enact a title [of the United States Code] into positive law has only evidentiary significance and does not render the underlying enactment invalid or unenforceable. See 1 U.S.C. § 204(a) (1982), (the text of titles not enacted into positive law is only prima facie evidence of the law itself). Like it or not, the Internal Revenue Code is the law, and the defendants did not violate Ryan’s rights by enforcing it.”

Ryan v. Bilby, 764 F2d 1325, 1328 (9th Cir. 1985).

“The petitioner’s argument that the Internal Revenue Code was not enacted by Congress is equally meritless. The Internal Revenue Code of 1954 was enacted by the 83rd Congress on August 16, 1954 (ch. 736, 68A Stat. 3) and has been amended by Congress with some frequency since that time.”

Urban v. Commissioner, T.C. Memo. 1991-220, affd. per curiam, 964 F.2d 888 (9th Cir. 1992).

“In his opposition, Plaintiff asserts that ‘Title 26 U.S.C. (including section 6321) has not been enacted into positive law, and is not the law, but is only prima facie evidence of the law.’ ... Congress’ failure to enact a title into positive law has only evidentiary significance and does not render the underlying enactment invalid or unenforceable. See 1 U.S.C. section 204(a). ‘Like it or not, the Internal Revenue Code is the law’. [Citations omitted] Plaintiff’s positive law argument is without merit.”

Bilger v. United States, 87 AFTR2d 2001-468, No. CIV F 00-6486 OWW JLO (U.S.D.C. E.D.Ca. 1/9/2001).

“On appeal he [Scott] makes the same arguments advanced and rejected countless times in tax protestor litigation, such as that the Tax Code is not binding “positive law,” and wages are exempt from taxation because they are not income. [Citations omitted] Needless to say, these contentions do not state a claim against the United States, let alone support a lien against its agents.”

United States v. Scott, 1999 U.S. App. LEXIS 16877; 99-2 U.S. Tax Cas. (CCH) P50,745; 84 A.F.T.R.2d (RIA) 5342, (7th Cir. 1999).

“Similarly frivolous is his claim that a summons could not be issued because title 26 has not been enacted into ‘positive law.’”

United States v. Hooper, 1995 U.S. App. LEXIS 38246; 76 A.F.T.R.2d (RIA) 8026, 1995 WL 792039 at *1 (9th Cir. 1995).

“Finally, we reject as frivolous Kolchev’s remaining contentions asserting that his wages are not taxable income, see 26 U.S.C. § 61, that notices of deficiency may only be issued to government employees, [citation omitted], that the IRS code is not enforceable because it has not been enacted into positive law, [citation omitted], and that the Commissioner lacked delegated authority to issue the notice of deficiency, [citation omitted].”

Kolchev v. Commissioner, 1995 U.S. App. LEXIS 2683; 75 A.F.T.R.2d (RIA) 839, (9th Cir. 1995).

“The appellant’s argument regarding the validity of Title 26 is frivolous. The validity of Title 26 is not affected merely because it has not been codified as ‘positive law’.”

Hackett v. Commissioner, 791 F.2d 933 (6th Cir. 1986).

“The claim that Title 26 was not enacted into ‘positive law,’ has been rejected as ‘frivolous,’ ‘baseless,’ ‘specious,’ and ‘preposterous.’ [Citations omitted]”

United States v. Maczka, 957 F.Supp. 988, 991 (W.D.Mich. 1996).

See also, United States v. Zuger, 602 F.Supp. 889, 891-92 (D. Conn. 1984) (‘holding that the failure of Congress to enact a title as such and in such form into positive law . . . in no way impugns the validity, effect, enforceability, or constitutionality of the laws as contained and set forth in the title’ and describing argument as “specious”), aff’d. without op., 755 F.2d 915 (2d Cir.), cert. denied, 474 U.S. 805 (1985); Young v. Internal Revenue Service, 596 F.Supp. 141, 149 (N.D.Ind. 1984) (asserting that ‘even if Title 26 was not itself enacted into positive law, that does not mean that the laws under the title are null and void’ and referring to the “positive law” argument as “preposterous”); United States v. Cooper, 170 F.3d 691 (7th Cir. 1999); United States v. Sloan, 939 F.2d 499, 500 (7th Cir. 1991), cert. den. 112 S.Ct. 940 (1992); Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986); Lovell v. United States, 755 F.2d 517, 519 (7th Cir. 1984); Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986); Sloan v. United States, 621 F.Supp. 1072, 1076 (N.D.Ind.1985) (litigants advancing ‘frivolous’ arguments such as assertions that the Internal Revenue Code is not positive law subjected to sanctions under Rule 11, FED. R. CIV. P.), aff’d in part and appeal dismissed, 812 F.2d 1410 (7th Cir.1987) (table); United States v. McLain, 597 F.Supp.2d 987, 994, n. 6 (D. Minn. 2009) (“[W]hile McLain is technically correct in arguing that Title 26 is merely prima facie evidence of the law, the distinction is largely academic because the relevant sections of Title 26 are identical to the relevant sections of the Internal Revenue Code.”).

The claim that “[t]he Internal Revenue Code is not law (or ‘positive law’)” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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The Internal Revenue Code does not define “income.”

Technically correct, but irrelevant. Section 61 of the Internal Revenue Code defines “gross income,” from which taxable income is calculated, as “all income from whatever source derived” and gives a number of examples of the types of income included in “gross income” in section 61, including compensation for services (i.e., wages, salaries, and other forms of earned income).

This is typical of many if not most (or all) taxing statutes, which describe the thing being taxed using words that have fairly well understood meanings to the average person (and lawyers), but which are themselves fairly difficult to define in a concise and authoritative way. For example, it can be as difficult to define what is meant by “property” as it is to define what is meant by “income,” and yet the Internal Revenue Code imposes taxes on transfers of “property” without ever defining what is meant by “property.” Section 2501 imposes a tax on “on the transfer of property by gift,” but there is no definition of “property” or “gift.” Similarly, section 2101 imposes a tax on a decedent’s “taxable estate” which, like “taxable income,” is computed by taking the “gross estate” and subtracting deductions for debts, estate administration expenses, and charitable and marital gifts. The “gross estate” is defined to include “all property, real or personal, tangible or intangible, wherever situated,” but there is no definition of what is meant by “property.”

The United States Supreme Court has not hesitated to interpret the word “income,” and has stated that Congress intended to impose the income tax on “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion,” with no restriction as to “source.” Commissioner v. Glenshaw GlassCo., 348 U.S. 426, 431 (1955).

Courts have therefore not been impressed with arguments about the need for a statutory definition of “income.”

“Upon review of May’s amended petition, we find no allegations of fact which could give rise to a valid claim; rather, the complaint merely contains conclusory assertions attacking the constitutionality of the Internal Revenue Code and its application to the taxpayer.[Footnote omitted.] Tax protest cases like this one raise no genuine controversy; the underlying legal issues have long been settled. See, e.g., Abrams, 82 T.C. at 406-07 (citing cases rejecting similar arguments). Because May’s petition raised no justiciable claims, the Tax Court properly dismissed the petition for failure to state a claim.”

May v. C.I.R., 752 F.2d 1301, 1302 (8th Cir. 1985), (among other things, May’s amended complaint alleged that “The Respondent has totally erred in its determination of ‘income’ when no definition of ‘income’ appears in the Internal Revenue Code. No basis exists for this improper determination of ‘income’ by the Respondent.” 752 F.2d at 1304, note 3).

“Plaintiff argues he is entitled to relief because the Code does not define income. The United States, however, is correct that “income” is afforded its every day usage as any gain derived from capital, labor, or both combined. See United States v. Richards, 723 F.2d 646, 648 (6th Cir. 1983). In addition, the Code explicitly defines “gross income”, from which taxable income is computed, as including compensation for services, i.e., wages.”

Tornichio v. United States, 81 AFTR2d 98-582, KTC 1998-71 (N.D.Ohio 1998), (suit for refund of frivolous return penalties dismissed and sanctions imposed for filing a frivolous refund suit), aff’d 1999 U.S. App. LEXIS 5248, 99-1 U.S. Tax Cas. (CCH) 50,394, 83 AFTR2d 99-579, KTC 1999-147 (6th Cir. 1999), (with sanctions imposed for filing a frivolous appeal).

“In April of 1995, Dr. Ahee filed two form 1040 federal individual income tax returns for the years 1990 and 1991. Each of these returns were filed with all entries completed ‘0,’ except the 1990 return demanded the $6,440 refund (presumably for taxes paid in 1989). Attached to these returns was a two paged typed addendum in which Dr. Ahee stated that he was not required to pay taxes. [...] Appellant avers that since the Code does not define income, he did not know that monies he received were income, so he violated the Code, if at all, in good faith. While it is true that the ‘general term income is not defined in the Internal Revenue Code,’ all of the monies received by Dr. Ahee clearly meet the definitions found in IRC section 61. [United State v.] Ballard, [535 F.2d 400 (8th Cir. 1976)] 535 F.2d, at 404. The money he received as compensation for patient services falls squarely within IRC section 61(a)(1): ‘Compensation for services, including fees, commissions, fringe benefits, and similar items.’”

United States v. Ahee, 2001 U.S. App. LEXIS 2706, 87 AFTR2d 2001-523, No. 99-1991 (6th Cir. 2/15/2001), (criminal conviction for willfully filing false returns affirmed).

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The Internal Revenue Code cannot define “income” because it is a term used in the Constitution and Congress cannot modify the Constitution by statute.

There is some truth to this and, as explained above, the Internal Revenue Code does not define “income.” “Gross income” (which is the beginning point to determine what is “taxable income”) is defined as “income from whatever source derived,” but “income” itself is not defined.

The U.S. Supreme Court has repeatedly held that Congress intended to tax everything within the Constitutional meaning of “income,” and so the Internal Revenue Code taxes “all gains except those specifically exempted.” Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-431 (1955); Commissioner v. LoBue, 351 U.S. 243, 246 (1956).

The problem with this argument is not that there are limits on the Congressional power to define “income,” but that tax protesters cannot convince any court that their wages (or other incomes) are not “income” within the meaning of the 16th Amendment.

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Wages are not income.

As unbelievable as it might sound, some tax protesters simply think that the income tax doesn’t apply to wages.

Section 61(a) of the Internal Revenue Code says that “gross income” (which is the starting point for determining “taxable income”) means “all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items....”

Sometimes the claim is that “compensation for services” is not the same as “wages.” Sometimes the claim is that “wages” are not the same as “gain” or “profit.” (See the discussion below on the claim that wages represent an equal, nontaxable exchange of labor for money.) Sometimes the claim is something else. Regardless of the rationale, the result is always the same: Wages are income.

Consider these statements by the United States Supreme Court:

“[T]he earnings of the human brain and hand when unaided by capital ... are commonly dealt with as income in legislation.”

Stratton’s Independence, Ltd. v. Howbert, 231 U.S. 399, 415 (1913).

“There is no doubt that the statute could tax salaries to those who earned them....”

Lucas v. Earl, 281 U.S. 111, 114 (1930).

“[The tax code] is broad enough to include in taxable income any economic or financial benefit conferred on the employee as compensation, whatever the form or mode by which it is effected.”

C.I.R. v. Smith, 324 U.S. 177 (1945).

“Wages usually are income ....”

Central Illinois Public Serv. Co. v. United States, 435 U.S. 21, 25 (1978).

“[T]he premise that personal injury awards cannot involve gain is obviously false, since they often are intended in significant part to compensate for the loss of gain, e. g., lost wages. (Citation omitted.) Since the gain would have been income, surely at least that part of a personal injury award that replaces it must also be income.”

Lukhard v. Reed, 481 U.S. 368, 375 (1987), (plurality opinion of Justice Scalia, joined by Rehnquist, White, and Stevens, Blackmun concurring in the result; footnote omitted).

“The definition of gross income under the Internal Revenue Code sweeps broadly. Section 61(a), 26 U.S.C. 61(a), provides that ‘gross income means all income from whatever source derived,’ subject only to the exclusions specifically enumerated elsewhere in the Code. As this Court has recognized, Congress intended, through 61(a) and its statutory precursors, to exert ‘the full measure of its taxing power,’ [citation omitted] and to bring within the definition of income any ‘accessio[n] to wealth.’ [citation omitted] There is no dispute that the settlement awards in this case [for ‘back wages’ to compensate for sex discrimination] would constitute gross income within the reach of 61(a).”

United States v. Burke, 504 U.S. 229, 233 (1992). Later in the same opinion, the Supreme Court referred to the compensation received by the taxpayers as “the wages properly due them - wages that, if paid in the ordinary course, would have been fully taxable.” 504 U.S. at 241.

“It [I.R.C. section 104, relating to compensation for personal injuries] also excludes from taxation those damages that substitute, say, for lost wages, which would have been taxed had the victim earned them.”

O’Gilvie v. United States, 519 U.S. 79 (1996).

“Even if we suppose that strike benefits are made to compensate in a sense for the loss of wages, the principle of payments in compensation does not apply because the thing compensated for, the wages, had they been received, would have been included in gross income.”

United States v. Kaiser, 363 U.S. 299, 311 (1960).

“It was therefore error to instruct the jury to disregard evidence of Cheek’ s understanding that, within the meaning of the tax laws, he was not a person required to file a return or to pay income taxes and that wages are not taxable income, as incredible as such misunderstandings of and beliefs about the law might be.”

Cheek v. United States, 498 U.S. 192, 204 (1991), (emphasis added).

Then there are the decisions of the Circuit Courts:

“Every court which has ever considered the issue has unequivocally rejected the argument that wages are not income.”

United States v. Connor, 898 F.2d 942, 943-944 (3rd Cir. 1990).

“In our view, petitioner’s wages are taxable as gross income...”

Beard v. Commissioner, 793 F.2d 139, 140 (6th Cir. 1986), aff’g 82 T.C. 766 (1984);

“Wages are taxable income,” and arguments to the contrary are ‘“patently frivolous.’”

Perkins v. Commissioner of Internal Revenue, 746 F. 2d 1187, 1188 (6th Cir. 1984), affg. T.C. Memo. 1983-474; ; Beerbower v. Commissioner of Internal Revenue, 787 F.2d 588 (6th Cir. 1986).

“Wages are income, and the tax on wages is constitutional.”

Coleman v. Commissioner, 791 F.2d 68 (7th Cir. 1986), citing United States v. Thomas, 788 F.2d 1250 (7th Cir. 1986); Lovell v. United States, 755 F.2d 517 (7th Cir. 1984); Granzow v. Commissioner, 739 F.2d 265, 267 (7th Cir. 1984);

“Although not raised in his brief on appeal, the defendant’s entire case at trial rested on his claim that he in good faith believed that wages are not income for taxation purposes. Whatever his mental state, he, of course, was wrong, as all of us are already aware. Nontheless, the defendant still insists that no case holds that wages are income. Let us now put that to rest: WAGES ARE INCOME. Any reading of tax cases by would-be tax protesters now should preclude a claim of good-faith belief that wages--or salaries--are not taxable.”

United States v. Koliboski, 732 F.2d 1328, 1329 n.1 (7th Cir. 1984), (emphasis in original; convictions for criminal failures to file affirmed).

“[W]e have [repeatedly] held that wages are within the definition of income under the Internal Revenue Code and the Sixteenth Amendment, and are subject to taxation.”

Denison v. Commissioner, 751 F.2d 241, 242 (8th Cir.1984) (per curiam), cert. denied, 471 U.S. 1069, 105 S.Ct. 2149, 85 L.Ed.2d 505 (1985); United States v. Gerads, 999 F.2d 1255 (8th Cir. 1993), cert. den. 510 U.S. 1193 (1994).

“Furthermore, § 61(a) of the Code defines gross income as ‘all income from whatever source derived, including . . . compensation for services.’ In sum, the sixteenth amendment authorizes the imposition of a tax upon income without apportionment among the states, and under the statute, the term ‘income’ includes the compensation a taxpayer receives in return for services rendered. Taxpayers’ argument that wages received for services are not taxable as income is clearly frivolous.”

Funk v. Commissioner, 687 F.2d 264, 265 (8th Cir. 1982), affirming T.C. Memo. 1981-506.

“Section 61 of the Internal Revenue Code imposes a tax on income, and under the Tax Code, wages are income.”

Grimes v. Commissioner, 806 F.2d 1451, 1453 (9th Cir. 1986).

“Compensation for labor or services, paid in the form of wages or salary, has been universally held by the courts of this republic to be income, subject to the income tax laws currently applicable.”

United States v. Romero, 640 F.2d 1014, 1016 (9th Cir. 1981).

“Irrefutably, wages earned in compensation for services are “income” pursuant to the federal tax laws.”

Boubel v. United States, 86 AFTR2d ¸2000-5123, No. 1:99-cv-380 (U.S.D.C. E.D.Tenn. 6/22/2000).

“[I]f anything in our tax law is clear, it is that: ‘WAGES ARE INCOME.’ ... [A]ny contention to the contrary is patently frivolous....”

Hill v. United States, 599 F. Supp. 118, 120-22 (M.D. Tenn. 1984), (emphasis in original), (quoting United States v. Koliboski, 732 F.2d 1328, 1329 n.1 (7th Cir. 1984)).

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: ... (5) wages are not income....”

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“[P]laintiff’s claim that wages are not subject to taxation has been so soundly rejected that plaintiff has risked the imposition of sanctions by raising this argument at all.”

Fuselier v. United States, 63 Fed. Cl. 8 (2004).

“[W]ages are indeed income subject to taxation.”

Hamzik v. United States, 92 AFTR 2d 2003-5743, KTC 2003-497 (Fed.Cls. 2003).

“No reasonable person could seriously think that, for example, the revenue laws can be avoided, and the government’s tax collection efforts can be brought to a standstill by the contention that wages are not income.”

Peth v. Breitzmann, 611 F. Supp. 50, 56 (E.D.Wis. 1985), 1985 U.S. Dist. LEXIS 21509, 85-1 U.S.T.C. ¶9321, 55 AFTR2d 1280 (complaints dismissed and sanctions imposed for filing frivolous actions “brought in bad faith”).

See also, Wilson v. United States, 412 F.2d 694, 695 (1st Cir. 1969); Schiff v. Commissioner, 751 F.2d 116, 117 (2d Cir. 1984); Commissioner v. Mendel, 351 F.2d 580, 582 (4th Cir. 1965); Simmons v. United States, 308 F.2d (4th Cir. 1962); Lonsdale v. Commissioner, 661 F.2d 71, 72 (5th Cir. 1981); United States v. Burton, 737 F.2d 439 (5th Cir. 1984); Capps v. Eggers, 782 F.2d 1341 (5th Cir. 1986); Sizemore v. United States, 797 F.2d 268, 271 (6th Cir. 1986); United States v. Ware, 608 F.2d 400 (10th Cir. 1979); United States v. Woodall, 255 F.2d 370, 372 (10th Cir. 1958), cert. den. 358 U.S. 824 (1958); Simanonok v. Commissioner, 731 F.2d 743, 744 (11th Cir. 1984); Sauers v. Commissioner, 771 F.2d 64, 66 (3d Cir. 1985), affg. T.C. Memo. 1984-367; Connor v. Commissioner, 770 F.2d 17, 20 (2d Cir. 1985); Biermann v. Commissioner, 769 F.2d 707, 708 (11th Cir. 1985); Waters v. Commissioner, 764 F.2d 1389, 1389 (11th Cir. 1985); Knighten v. Commissioner, 702 F.2d 59, 60 (5th Cir. 1983).

Tax Protester “Evidence”

So where do tax protesters get the idea that wages might not be income? Often from a series of incomplete and misleading quotations from irrelevant cases.

“It is to be noted that, by the language of the Act, it is not salaries, wages, or compensation for personal services that are to be included in gross income. That which is to be included is gains, profits, and income derived from salaries, wages, or compensation for personal services.” Lucas v. Earl, 281 U.S. 111 (1930).

The above quotation is not from the opinion of the Supreme Court, but is one of the arguments made by the taxpayer, who lost. (Older reports of Supreme Court decisions printed summaries of the arguments of the parties before the text of the court’s opinion.) The Supreme Court ruled against the taxpayer, holding that the taxpayer was liable for the tax on his salary and stating that “[t]here is no doubt that the statute could tax salaries to those who earned them....” 281 U.S. at 114.

“There is a clear distinction between ‘profit’ and ‘wages’ or compensation for labor. ‘Compensation for labor’ can not be regarded as profit within the meaning of the law. The word ‘profit’ as ordinarily used, means the gain made upon any business or investment--a different thing altogether from mere compensation for labor.” Oliver v. Halstead, 196 Va. 992, 86 S.E.2d 859 (1955).

This is not a federal decision, but a decision of the Virginia Supreme Court. It is also not a tax decision, but a decision interpreting Virginia’s nonprofit corporation law. Specifically, the issue before the court was whether compensation paid to an employee of the corporation was a private “profit” prohibited by the state’s nonprofit corporation law. The court held that a payment of compensation for labor is not the same as a “profit” from the corporation. This is completely different from the question of whether the payment is taxable income to the employee. (Another decision sometimes cited by tax protesters is Lauderdale Cemetery Assoc. v. Mathews, 345 Pa. 239 (1946), which is a similar decision under Pennsylvania’s nonprofit corporation laws.)

“One does not ‘derive’ income by rendering services and charging for them.” Edwards v. Keith, 231 F. 110, 113 (2d Cir. 1916).

The quotation is deceptive, because it omits a critical sentence appearing earlier in the same paragraph:

“But no instructions of the Treasury Department can enlarge the scope of this statute so as to impose the income tax upon unpaid charges for services rendered and which, for aught any one can tell, may never be paid.”

Notice the word “unpaid”? The taxpayer had not yet received any payment for the services rendered. The issue before the court was not whether payment for services rendered was income, but whether the IRS could impose a tax on income that had not yet been received (which it couldn’t under the tax law as it then existed).

“Congress has taxed income, not compensation.” Conner v. United States, 803 F.Supp. 1187, 1191 (S.D. Tex. 1969), aff’d on this issue, 439 F.2d 974 (5th Cir. 1971).

The issue in that case was whether insurance proceeds received by the taxpayer after the destruction of his home should be considered taxable income. That case has nothing to do with wages or compensation for labor.

“Income within the meaning of the Sixteenth Amendment and the Revenue Act, means ‘gain’... and in such connection ‘Gain’ means profit...proceeding from property, severed from capital, however invested or employed, and coming in, received, or drawn by the taxpayer, for his separate use, benefit and disposal....”

Stapler v. United States, 21 F.Supp 737 at 739.

This is often cited as a decision of the Supreme Court, but it was actually a decision of a District Court (the lowest level of the federal court system), and the decision related to the issue of whether a landlord realized income when a tenant makes improvements to the leased property, and had nothing to do with wages or other compensation for labor. See Helvering v. Bruun, 309 U.S. 461, 466, n. 6 (1940). The most common version of this “quotation” that appears on tax protester web sites includes a final sentence, “Income is not a wage or compensation for any type of labor.” This sentence of the “quotation” does not appear in the published opinion, which makes no mention whatsoever of “wages” and is a fabrication.

“We must reject … the broad contention submitted in behalf of the Government that all receipts—everything that comes in—are income within the proper definition of ‘gross income....’”

Southern Pacific Co. v. Lowe, 247 U.S. 330, 335 (1916).

Even taking this (partial) quotation at face value, so what? The general statement that “not everything that comes in is gross income” doesn’t tell you what is or is not gross income, or whether compensation for labor is gross income.

But let’s look at the full quote and the context of the decision. What the court actually said was:

“We must reject in this case, as we have rejected in cases arising under the Corporation Excise Tax Act of 1909 [citations omitted], the broad contention submitted in behalf of the government that all receipts—everything that comes in—are income within the proper definition of the term ‘gross income,’ and that the entire proceeds of a conversion of capital assets, in whatever form and under whatever circumstances accomplished, should be treated as gross income.”

247 U.S. at 335 (emphasis added).

The court was dealing with a variation of an issue that had come up before, which is that a return of capital is not income. When you sell an asset, the “income” is not the gross purchase price, but the gain, which is the difference between what you bought it for and what you’re selling it for.

The exact issue before the court was whether a dividend that was paid out of profits earned before March 1, 1913 (which was the effective date of the Revenue Act of 1913), was income when the dividend was received later in 1913. The court held that the profits earned before that date were not subject to tax and had become a form of capital, and that a distribution of capital is not income even if the distribution takes the form of a dividend.

And that is still the law today. Section 316(a) of the Internal Revenue Code defines a “dividend” that is subject to income tax as a distribution by a corporation to its shareholders out of its earnings and profits earned during the year or out of earnings and profits accumulated after February 28, 1913. Corporations sometimes pay out amounts that are dividends under state law but that exceed earnings and profits and are considered a return of capital and not taxable as dividends under the Internal Revenue Code.

And Southern Pacific Co. v. Lowe was not really a constitutional decision, but one of statutory construction on the meaning of “income” in the Revenue Act of 1913. The 16th Amendment does not limit Congress to taxing only “income,” and the Supreme Court has, in other cases decided before the ratification of the 16th Amendment, upheld the constitutionality of taxes on gross receipts as lawful excises. See, for example, Spreckels Sugar Refining Co. v. McClain, 192 U.S. 397 (1904) (excise on gross receipts from refining sugar); Nicol v. Ames, 172 U.S. 509 (1899) (excise based on gross sale prices in an exchange or board of trade). A recent opinion of the Circuit Court of the District of Columbia upheld the constitutionality of taxing damages received on account of non-physical injuries on the grounds that, even if the amounts received were not “income” in the constitutional sense, the imposition of the tax was still constitutional as an excise. See Murphy v. I.R.S., 493 F.3d 170, No. 05-5139 (D.C. Cir. 7/3/2007), vacating 460 F.3d 79 (8/22/2006).

The fact of the matter is that there are no cases holding that wages are not income subject to tax. Not one. Claims to the contrary are based on quotations out of context, fabrications, and wishful thinking.

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Wages are not “income” because wages represent an equal exchange of labor (a form of “property”) for money (another form of property), so there is no gain and no income.

The fundamental premises are all wrong.

As explained above, it is difficult to describe “labor” as a form of property when labor is, by definition, something that has not yet been done.

More importantly, “gain” is not the difference in the values of what is exchanged, it is the difference between the cost of what is given up and the value of what is received. For example, suppose I buy stock for $10 per share on the New York Stock Exchange. The stock is freely traded and, based on the other trades that day, I can show that the stock was worth $10 per share when I bought it. Some time goes by, and the stock is now trading at $50 per share. If I sell the stock at fair market value, do I have taxable gain? Of course I do, and the gain is $40, which is the difference between what I paid for the stock and what I sold it for.

Any other result would mean that almost nothing would be taxable income, because almost all transactions (other than gifts, mistakes, or frauds) are based on fair market value.

To illustrate, suppose I lend the federal government $95 in exchange for its promise to pay $100 in six months’ time. This promise is usually called a “Treasury bill.” I can show that similar Treasury bills were selling that day for $95, so the Treasury bill I got was worth the same $95 I paid for it. After six months, similar Treasury bills are trading for $100 and I return (or sell) the Treasury bill and get $100. Do I have income? Of course. The extra $5 I received is interest income even though when I returned the Treasury bill it was worth $100.

The Supreme Court has therefore stated that the income tax applies to all “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.” Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955)). (The requirement that accessions to wealth be “realized” means that increases in the value of assets are not taxed to the owner as capital gains until the asset is sold.)

So, if I sell my own labor for $100, I must calculate the gain based on the difference between what I paid for my own labor (not what it is worth) and what I receive for it. Because I paid nothing for my own labor, everything I receive is income.

Looking at it another way, if I start the week with no money, am paid $100 for my labor, and end the week with $100, I am $100 richer than I was at the beginning of the month. That $100 gain is an “undeniable accession to wealth” (in the words of the Supreme Court), and therefore income.

The argument that _ would also be inconsistent with an opinion of the Supreme Court in 1913. Addressing an argument that a mine owner should be allowed to deduct as a form of depreciation the value of the ore that is in the ground before it is extracted, the Supreme Court stated:

“As to the alleged inequality of operation between mining corporations and others, it is of course true that the revenues derived from the working of mines result to some extent in the exhaustion of the capital. But the same is true of the earnings of the human brain and hand when unaided by capital, yet such earnings are commonly dealt with in legislation as income.”

Stratton’s Independence, Ltd. v. Howbert, 231 U.S. 399, 415 (1913).

So, even if human time and effort could be considered a kind of “capital,” the compensation for that capital has still been considered a form of income throughout history.

And so the federal courts have uniformly and repeatedly rejected the claim that compensation for labor is an exchange that does not result in income.

“The taxpayer next argues that wages are not income but an exchange of property. As money is property and labor is property, so his argument goes, his work for wages is a non-taxable exchange of property. Wrong again. Wages are income. See, e.g., Schiff v. Commissioner, 751 F.2d 116, 117 (2d Cir. 1984). The argument that they are not has been rejected so frequently that the very raising of it justifies the imposition of sanctions.”

Connor v. Commissioner, 770 F.2d 17, 20 (2nd Cir. 1985), (the court not only ruled against the taxpayer, but also imposed sanctions of $2,000 for making a frivolous appeal).

“Appellant’s contention that the amounts he received from his employers constituted an equal, nontaxable exchanges of property rather than taxable income is clearly without merit. This court specifically rejected this argument in United States v. Lawson, 670 F.2d 923, 925 (10th Cir. 1982), as did the Tax Court in Rowlee v. Commissioner, 80 T.C. 1111, 1119-22 (1983).... Merely raising the argument that value received for labor does not constitute taxable income, but rather constitutes a nontaxable exchange of property, justifies the imposition of sanctions.”

Casper v. Commissioner, 805 F.2d 902, 906 (10th Cir. 1986).

“According to Buras, income must be derived from some source. Wages cannot be taxed because the wage earner enjoys no gain from that source. Since the wage earner exchanges his labor and personal time for its equivalent in money, he derives no gain and therefore cannot be taxed. ... Appellant’s argument is refuted by one of the cases he cites. In Stratton’s Independence, Ltd. v. Howbert, 231 U.S. 399, 415, 34 S.Ct. 136, 140, 58 L.Ed. 285 (1913), the Court did define income as gain derived from labor. The Court went on to explain, however, that ‘the earnings of the human brain and hand when unaided by capital’ are commonly treated as income.”

United States v. Buras, 633 F.2d 1356, 1361 (9th Cir. 1980).

“Furthermore, Olson’s attempt to escape tax by deducting his wages as ‘cost of labor’ ... illustrate the frivolous nature of his position. This court has repeatedly rejected the argument that wages are not income as frivolous....”

Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985).

“DeMoss contends that the compensation he received from his employers is not taxable because his basis in his labor is equal to the amount of compensation he received. The tax court properly rejected this frivolous contention. See Carter v. Commissioner, 784 F2d 1006, 1009 (9th Cir. 1986); Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985).”

DeMoss v. Commissioner, 1995 U.S. App. LEXIS 2672, 75 A.F.T.R.2d 841 (9th Cir. 1995), (unpublished; sanctions imposed for filing a frivolous appeal).

“Appellant’s second argument is that his compensation in exchange for labor is property, not income. ... Again, he is wrong. The Third Circuit unequivocally has stated that ‘wages are income within the meaning of the Sixteenth Amendment.’ United States v. Connor, 898 F.2d 942, 944 (3rd Cir. 1990). The Third Circuit then warned that ‘[u]nless subsequent Supreme Court decisions throw any doubt on this conclusion, we will view arguments to the contrary as frivolous, which may subuect the party asserting them to appropriate sanctions.’ Id. Such authority is neither cited nor found, and appellant’s arguments will be dismissed as frivolous. Wages are income.”

Angstadt v. Internal Revenue Service, 84 AFTR2d ¸99-5455, 1999 WL 820866, at 2 (U.S.D.C. E.D.Pa. 1999).

“[Peth] states that the income taxes are directed to taxable gain. Because he receives a paycheck for his labor, and because the paycheck is equal to the fair market value of his labor, he argues there is no gain. No court has ever accepted this argument for the purpose of determining taxable income. Indeed, it has always been rejected. For once and for all, wages are taxable income.”

Peth v. Breitzmann, 611 F. Supp. 50, 53 (E.D.Wis. 1985), 1985 U.S. Dist. LEXIS 21509, 85-1 U.S.T.C. ¶9321, 55 AFTR2d 1280 (complaints dismissed and sanctions imposed for filing frivolous actions “brought in bad faith”).

“Even if wages are, in effect, an exchange of equal value for value, they are nevertheless taxable income. Rowlee v. Commissioner, 80 T.C. 1111, 1121-1122 (1983); Rice v. Commissioner, T.C. Memo. 1982-129. And even if we apply section 1001 to determine petitioner’s gain, his basis is defined under sections 1011 and 1012 as his cost, not fair market value. Since he paid nothing for his labor, his cost and thus his basis are zero. Rice v. Commissioner, supra. Consequently, even under section 1001, his taxable income from his labor is his total gain reduced by nothing, i.e., his wages. ... Petitioner’s argument fails for the same reason that other protesters’ arguments fail; the worker’s cost for his services--and thus his basis--is zero, not their fair market value.”

Talmage v. Commissioner, T.C. Memo. 1996-114, aff’d 101 F.3d 695 (4th Cir. 1996).

“Petitioner submitted to the Internal Revenue Service documents purporting to be 1995 and 1996 Federal income tax returns. The documents reported petitioner’s compensation earned in each year and then deducted the equivalent amount as ‘Property (money) exchanged for property (labor not subject to tax).” ... The only dispute that petitioner raised with respect to the amounts of compensation is his frivolous arguments that his wages are not taxable. These arguments, as petitioner was advised in the District Court order, citing United States v. Studley, 783 F.2d 934, 937 (9th Cir. 1986), have been consistently and thoroughly rejected and may be the basis for sanctions.”

Wheelis v. Commissioner, T.C. Memo 2002-102, 2002 TNT 74-14, (sanctions of $10,000 imposed for frivolous arguments raised primarily for delay); aff’d 2003 TNT 108-7, No. 02-73119 (9th Cir. 5/16/2003).

“In effect, Ms. Sumter attempts to claim that the deduction (her total salary) was a necessary expense for the production of that same salary. She provides no support or credible justification for her untenable position. Ms. Sumter tries to cite case law in support of her “even exchange” argument; however, none of the cases she cites justify her position. In fact, the cases are contrary to her .position. [Discussion of cases omitted] Thus, courts have clearly rejected the “even exchange” argument, which erroneously asserts that no taxes are owed on employment wages, since the income from the services rendered was a fair market value and, therefore, no profit or gain occurred as a result of the work performed.”

Sumter v. United States, 61 Fed. Cl. 517, 518 (2004).

“[A] review of the pleadings indicates that Mr. Ledford bases his entitlement to this relief on his view that the federal tax code does not tax compensation received for personal labor. Mr. Ledford’s view of the tax law is mistaken, as the tax code quite plainly defines income to include amounts received in compensation for services rendered. 26 U.S.C. § 61(a) (2000) (“[G]ross income means all income from whatever source derived including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items . . . .”). Indeed, every court that has considered the matter has found this argument to be wholly without merit -- so much so that merely raising it is considered sanctionable.”

Ledford v. United States, 297 F.3d 1378, 1381, 2002 TNT 153-6, No. 02-5027 (Fed. Cir. 8/6/2002).

See also, Brown v. U.S., 35 Fed. Cl. 258, 269 (1996) (explaining that Lonsdale v. Comm’r of Internal Revenue, 661 F.2d 71 (5th Cir. 1981) rejected the “even exchange” argument), aff’d, 105 F.3d 621 (Fed. Cir.), reh’g denied (1997); Granzow v. Commissioner, 739 F.2d 265, 267 (7th Cir. 1984).

The claim that “[w]ages, tips, and other compensation received for the performance of personal services are not taxable income or are offset by an equivalent deduction for the personal services rendered, including an argument that a taxpayer has a “claim of right” to exclude the cost or value of the taxpayer’s labor from income or that taxpayers have a basis in their labor equal to the fair market value of the wages they receive,” or similar arguments described as frivolous in Rev. Rul. 2004-29, 2004-12 I.R.B. 627, or Rev. Rul. 2007-19, 2007-14 I.R.B. 843, has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Tax Protester “Evidence”

Although the “equal exchange” argument has been rejected soundly by every court to have ever considered it, it got an unexpected (and indirect) boost from the D.C. Circuit Court of Appeals in 2006.

The issue before the D.C. Circuit was the taxation of a compensatory damages received from a former employer for “emotional distress and loss of reputation” arising out of certain wrongful actions taken by her former employer. She first reported the damages as part of her gross income, but then filed an amended return claiming a refund for the income tax on the damages and, when the IRS denied the refund, she sued for a refund in federal district court, alleging that the taxation of the compensatory damages was unconstitutional. The district court ruled for the government but, on appeal, a three-judge panel of the circuit court reversed the district court and held that the inclusion of the damages in gross income was unconstitutional. Murphy v. I.R.S., 460 F.3d 79, 2006 TNT 163-6, No. 05-5139 (D.C. Cir. 8/22/2006), vacated and reversed on rehearing, 493 F.3d 170, 2007 TNT 129-4, No. 05-5139 (D.C. Cir. 7/3/2007).

The issue arose because in 1996 Congress had amended I.R.C. section 104(a)(2), which excludes amounts received as damages for personal injuries or sickness, by changing “personal injuries” to “personal physical injuries” and expressly providing that “emotional distress” is not a physical injury or physical sickness. Before the amendment, damages to personal reputation and emotional distress had both been treated as “personal injuries” and so damage awards for those kinds of injuries had been excluding from income.

The Court of Appeals looked at the history of the tax treatment of compensation for personal injuries, including the provisions of the Revenue Act of 1918, which was enacted only five years after the ratification of the 16th Amendment, as well as the available evidence as to the meaning of “income” at the time of the ratification of the 16th Amendment, and concluded that “damages received solely in compensation for a personal injury are not income within the meaning of that term in the Sixteenth Amendment.”

“First, as compensation for the loss of a personal attribute, such as well-being or a good reputation, the damages are not received in lieu of income. Second, the framers of the Sixteenth Amendment would not have understood compensation for a personal injury -- including a nonphysical injury -- to be income. Therefore, we hold § 104(a)(2) unconstitutional insofar as it permits the taxation of an award of damages for mental distress and loss of reputation.”

460 F.3d at 88.

Criticism from law professors, lawyers, and other legal commentators was immediate, and severe. See, for example, the commentaries on the TaxProf Blog. The most obvious problem with the court’s opinion is that it never addressed, and apparently ignored or misunderstood, the problem of basis. As the court’s opinion noted:

“[T]he Government challenges the coherence of Murphy’s analogy between a return of ‘human capital or well-being’ and a return of ‘financial capital,’ the latter of which it acknowledges does not constitute income under the Sixteenth Amendment. The Government first observes that financial capital, like all property, has a ‘basis,’ defined by the IRC as ‘the cost of such property,’ 26 U.S.C. § 1012, adjusted ‘for expenditures, receipts, losses, or other items, properly chargeable to [a] capital account,’ id. § 1016(a)(1); thus, when a taxpayer sells property, his income is ‘the excess of the amount realized therefrom over the adjusted basis.’ Id. § 1001(a). The Government then observes that ‘[b]ecause people do not pay cash or its equivalent to acquire their well-being, they have no basis in it for purposes of measuring a gain (or loss) upon the realization of compensatory damages.’ Nor is there any corresponding theory of ‘human depreciation,’ which would permit ‘an offsetting deduction for the exhaustion of the taxpayer’s physical prowess and mental agility.’ Finally, the Government points to the Ninth Circuit’s dictum in Roemer v. Commissioner, 716 F.2d 693 (1983), suggesting that ‘[s]ince there is no tax basis in a person’s health and other personal interests, money received as compensation for an injury to those interests might be considered a realized accession to wealth.’ Id. at 696 n.2.”

460 F.3d at 87 (citations omitted).

The government filed a petition for rehearing and the original three-judge panel must have realized that it made a mistake because it vacated its own decision on 12/22/2006 and ordered a new briefing schedule. After re-argument, the three-judge panel held that the damages for non-physical injuries were subject to income tax, and the tax was constitutional, but did so in a very strange away. Apparently unwilling to admit it made a mistake, the judges did not re-address the issue of whether compensation for non-physical personal injuries is “income,” but instead concluded that the damage award was nevertheless included in “gross income” as defined by I.R.C. section 61(a) (based mainly on the fact that, if the award was not gross income then the amendment to section 104 would have no effect) and the tax on the award is constitutional whether or not it is “income” because the tax is within the general Congressional power to tax and is not a “direct tax” but an “excise.” Murphy v. I.R.S., 493 F.3d 170, 2007 TNT 129-4, No. 05-5139 (D.C. Cir. 7/3/2007), vacating 460 F.3d 79, 2006 TNT 163-6, No. 05-5139 (D.C. Cir. 8/22/2006).

Although the court vacated it’s earlier decision, it did not repudiate the reasoning in its earlier opinion on “human capital,” so tax protesters could still try to extend the reasoning of the original opinion to deny that wages and salaries are income, even though compensation for personal injuries is very different from wages and salaries.

One taxpayer has made a “human capital” argument, and was sanctioned by both the Tax Court and the Sixth Circuit Court of Appeals:

“In an attachment, entitled ‘Formal Tax Return Protest With Memorandum of Law,’ the petitioners argued that a portion of their wages was not taxable under the Sixteenth Amendment because it was a return on human capital, i.e., the ‘human machine.’ [....]

“[W]e reject the argument that wages are not completely taxable because they are a return on human capital. This is a variation on an argument repeatedly rejected by courts that wages are not income because they are in equal exchange for labor.”

Gary Boggs et ux. v. Commissioner, 569 F.3d 235 (6th Cir. 2009) (affirming sanctions of $10,000 imposed by the Tax Court and imposing additional sanctions of $8,000 imposed for a frivolous appeal).

The Murphy decision should therefore not lead to any serious constitutional challenges to the taxation of wages, salaries, and other forms of compensation for services. As the Supreme Court noted in 1913, the same year that the 16th Amendment was ratified:

“[T]he earnings of the human brain and hand when unaided by capital ... are commonly dealt with in legislation as income.”

Stratton’s Independence, Ltd. v. Howbert, 231 U.S. 399, 415 (1913).

No federal court is ever going to reach a different result.

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Even if my wages are income, I can deduct the ordinary costs of living in order to calculate the gain from my labor.

This is a more subtle variation on the “wages are a nontaxable exchange” argument, except that in this one, the tax protester is trying to establish a “cost” (or “basis”) for his labor in order to reduce the gain.

The analogy that is sometimes drawn by tax protesters is that of a farmer who owns a horse to work on his farm. The horse must be fed and sheltered, and so the costs of feeding the horse and maintaining the stable are deductible in calculating the profits of the farmer. Just like a horse must be fed and sheltered, and human laborer must be fed and sheltered in order to be able to work, and so the costs of living should be deductible for a laborer.

The problem with the horse analogy is that the farmer can choose whether or not to own a horse, and so choose whether or not to feed a horse. Can a human laborer choose whether or not to eat? If a human being requires approximately the same amount of food and shelter regardless of whether or not working, then the costs of the costs of food and shelter are not the costs of producing income but simply the same costs of living that everyone incurs whether or not they are working.

And Congress has provided for the basic “cost of living” through the personal exemption, which is the same for every person, whether or not working.

Only one court decision has been found that squarely addresses this issue:

“One’s gain, ergo his ‘income,’ from the sale of his labor is the entire amount received therefor without any reduction for what he spends to satisfy his human needs.”

Reading v. Commissioner, 70 T.C. 730, 734 (1978), affd. 614 F.2d 159 (8th Cir. 1980). In affirming, the 8th Circuit adopted the “well-reasoned decision of the Tax Court” and specifically rejected the argument that “by disallowing deductions for those [living or family] expenses, Congress exceeded its authority to lay and collect income taxes under the 16th Amendment, and that income means the gain or income received less the expense of living.” 614 F.2d at 160.

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Even if my wages are gross income, I can deduct the full amount of the wages as a “claim of right” and not have any taxable income.

The “claim of right” doctrine is a real tax doctrine and it allows a deduction if income was reported in a previous year in the mistaken belief that the taxpayer had an unrestricted right to the income, but then the income is repaid in a later year once it is found that the taxpayer was not actually entitled to the income at all. So, if you report something as income and it turns out you have to repay it, you can claim a deduction in the year of the repayment. The deduction for the repayment in the later year (and a special recalculation of tax) is codified in I.R.C. section 1341.

Somehow, some tax protesters (and scam artists) have decided that the “claim of right” doctrine allows them to avoid paying any tax at all, by subtracting their income from their income.

So the courts have had to set them straight:

“In this case, after including her salary in her gross income, the plaintiff claims her entire salary as a deduction. Thereby, the plaintiff attempts to reduce her taxable income to zero and eliminate her income tax liability. The plaintiff argues that the deductions she relies on are “mandatory” and that she is not liable for any tax for 1999 and 2001. ... Ms. Sumter’s assertions are founded on her “claim of right” theory arising out of IRC § 1341, but IRC § 1341 is inapplicable to the present facts. IRC § 1341 only applies to situations in which the claimant is compelled to return the taxed item, or its equivalent, because of a mistaken presumption that the right held was unrestricted and, therefore, the item was previously reported, erroneously, as taxable income. [citations omitted] In the case before the court, IRC § 1341 is inapplicable to Ms. Sumter’s claim because she has a continuing, unrestricted claim of right to her salary income and has not been compelled to repay that earned income in a later tax year.”

Sumter v. United States, 61 Fed. Cl. 517, 518 (2004).

And the following District Court has followed the Sumter decision:

“The challenged refund was issued on the basis of Defendants’ second amended tax return. On that tax return, Defendants modified their itemized deductions, deducting $56,016 for “an unrestricted claim of right for compensation for personal labor founded on USC Title 26 Section 1341.” Defendants’ theory is that they have a natural right to make a living, that the money received was in “compensation for personal labor that was received as a repayment of a debt that was owed to [Defendants],” and that debt was created by Defendants’ labor. Essentially, Defendants contend that wages are not income at all, but repayment of the debt created by working. Under this theory, Defendants contend that they did not make a profit, and thus do not need to count the money as income under § 1341.

“In Sumter v. United States, 61 Fed. Cl. 517, 518 (2004), the plaintiff included wages in her gross income but then attempted to deduct those wages under § 1341, thus reducing her taxable income to zero. The Sumter court found the plaintiff’s legal theory to be devoid of legal merit. Section 1341, it was pointed out, applies to situations in which a claimant is forced to return a previously taxed item to which the claimant had mistakenly believed he had an unrestricted right. Id. at 523 (citing 26 U.S.C. § 1341). As the Court of Federal Claims pointed out, the plaintiff did in fact have a continuing and unrestricted right to her salary income and had never been compelled to repay that salary. Id.”

United States v. Furlong, 2005 TNT 136-14, No. 1:04-CV-3772 (U.S.D.C. N.D.Ga. 6/22/2005), (summary judgment granted for United States in action to recover erroneous refund in accordance with 26 U.S.C. 7405).

The IRS has recognized the misuse of the claim of right doctrine, and ruled that taxpayers using the claim of right doctrine (and section 1341) to claim deductions equal to their incomes in order to avoid any tax on their incomes are making a frivolous claim that could result in civil or criminal penalties. Rev. Rul. 2004-29, 2004-12 I.R.B. 627.

Also, the claim that “[w]ages, tips, and other compensation received for the performance of personal services are not taxable income or are offset by an equivalent deduction for the personal services rendered, including an argument that a taxpayer has a “claim of right” to exclude the cost or value of the taxpayer’s labor from income or that taxpayers have a basis in their labor equal to the fair market value of the wages they receive,” or similar arguments described as frivolous in Rev. Rul. 2004-29, 2004-12 I.R.B. 627, or Rev. Rul. 2007-19, 2007-14 I.R.B. 843, has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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Wages are not income, but only a source of income (Section 61 of the Internal Revenue Code lists only sources of income), so wages cannot be taxable.

As explained above, the argument that the 16th Amendment requires the determination of a “source” before income can be taxed turns the 16th Amendment on its head and is totally inconsistent with the words of the amendment, the history of the amendment, and the court decisions interpreting the amendment.

The argument is equally bizarre when applied to the meaning of the Internal Revenue Code.

Section 61(a) of the Code states that “gross income” (the beginning of the determination of “taxable income”) means “all income from whatever source derived .. ..”

As explained above in connection with the same phrase (“from whatever source derived”) in the 16th Amendment, the word “whatever” is usually defined as meaning “of any number or kind,” or “of any kind at all.” If income is taxable from any kind of source, then there is no need to identify the source before taxing the income. (What about income that has no source? I will leave it to more imaginative minds than mine to try to visualize an income that springs out of thin air, with no source at all.)

In interpreting similar provisions of the Internal Revenue Code of 1929, the Supreme Court expressly disputed the idea that the “source” of income was significant:

“Congress applied no limitations as to the source of taxable receipts, nor restrictive labels as to their nature. And the Court has given a liberal construction to this broad phraseology in recognition of the intention of Congress to tax all gains except those specifically exempted.” Commissioner v. Glenshaw GlassCo., 348 U.S. 426, 429-30 (1955).

The regulations under the Internal Revenue Code also confirm that the geographical source of the income of a citizen or resident of the United States is usually not relevant:

“In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States.” Treas. Reg. § 1.1-1(b).

But some tax protesters claim that the reference in section 61 to “the following items” is to not to a list of items of income, but to a list of “items of sources,” which makes no sense, either grammatically or as a matter of common English usage. And, like many tax protester arguments, it also claims too much, and collapses of its own weight.

If the list of “items” is section 61 is a list of sources, and not income, and “sources” are not taxable, then nothing is taxable, because the items listed in section 61(a) include almost every type of income imaginable:

  1. Compensation for services, include fees, commissions, fringe benefits, and similar items;
  2. Gross income derived from business;
  3. Gains derived from dealings in property;
  4. Interest;
  5. Rents;
  6. Royalties;
  7. Dividends;
  8. Alimony and separate maintenance payments;
  9. Annuities;
  10. Income from life insurance and endowment contracts;
  11. Pensions;
  12. Income from discharge of indebtedness;
  13. Distributive share of partnership gross income;
  14. Income in respect of a decedent; and

  15. Income from an interest in an estate or trust.

If none of those things are income, and none of them is taxable, then nothing is income, an absurd result which Congress could not possibly have intended. (Students of logic may recognize this as a reductio ad absurdum, or proof that something is false by showing that, if it were true, it would lead to absurd results. Unfortunately, tax protesters know nothing of logic.)

Related topics:

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Wages paid within the United States are not a “source” of income defined by section 861 of the Internal Revenue Code and so are not taxable.

The claim is that the Internal Revenue Code does not apply to most of the income of citizens of the United States because the only definitions of “sources of income” apply only to nonresident aliens and foreign corporations. (See I.R.C. section 861 and its regulations.) This argument is both silly and completely contrary to the express language of the Internal Revenue Code and its regulations.

Section 61(a) of the Internal Revenue Code states defines “gross income” (which is the starting point for the calculation of taxable income) as follows:

“Except as otherwise provided in this subtitle, gross income means all income from whatever source derived....”

The general rule, therefore, is that all income is included in gross income, unless there is a specific exception or exclusion in some other section of the Internal Revenue Code. (The reference to “this subtitle” is a reference to Subtitle A of the Internal Revenue, which is where the income tax are defined and imposed. Other subtitles relate to other kinds of taxes, such as the federal to estate and gift taxes, or to the enforcement and administration of taxes generally.)

The regulations confirm that U.S. citizens (and residents) are taxed on all of their income, regardless of where the source is located, and so the source of income is irrelevant to U.S. citizens and residents.

“In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States.”

Treas. Reg. § 1.1-1(b).

The general rule, therefore, is that all income is included in gross income, regardless of the source of the income.

This has been confirmed by the U.S. Court of Claims:

“The determination of where income is derived or ‘sourced’ is generally of no moment to either United States citizens or United States corporations, for such persons are subject to tax under section 1 and section 11, respectively, on their worldwide income.”

Great-West Life Assur. Co. v. United States, 230 Ct. Cl. 477, 678 F.2d 180, 183 (1982)

So how can tax protesters claim that their income is not subject to tax? By a selective and very tortured reading of section 861 of the Internal Revenue Code and its regulations. Briefly, many tax protesters claim that:

  1. “Taxable income” and the “sources” of taxable income can be determined only by reference to section 861 and its regulations; and

  2. The regulations under section 861, specifically § 1.861-8(f), list all possible taxable sources of income; and

  3. The incomes of most citizens are not described in Treas. Reg. § 1.861-8(f).

Needless to say, every step in the “logic” of tax protesters is wrong.

As already explained, the Internal Revenue Code and regulations are quite clear in stating that citizens and residents of the United States are taxed on all income, regardless of source.

So why does section 861 exist?

Even a casual reading of section 861 and its regulations makes it clear that the statute and regulations were enacted to deal with the problems of calculating the taxable incomes of nonresident aliens, or for dealing with special provisions for taxpayers with incomes from sources outside of the United States. Section 861 is part of Subchapter N of the Internal Revenue Code, which is titled “Tax Based on Income From Sources Within or Without the United States.” More specifically, section 861 is in Part I of Subchapter N, and Part I is titled “Source Rules and Other General Rules Relating to Foreign Income.” The other parts of Subchapter N are titled “Nonresident Aliens and Foreign Corporations,” “Income from Sources Without the United States,” “Domestic International Sales Corporations,” and “International Boycott Determinations.” Are you beginning to see a pattern?

Nonresident aliens (i.e., individuals who are neither citizens nor residents of the United States) and foreign corporations are taxed by the United States only on income earned in the United States. See, for example, I.R.C. section 872, which defines “gross income” for a nonresident alien in a way that is different from the definition in section 61 (which means that section 872 is one of the “Except as otherwise provided in this subtitle” referred to in section 61). Under section 872(a), the gross income of a nonresident alien individual includes only (1) “gross income which is derived from sources within the United States” and (2) gross income which is effectively connected with a trade or business within the United States. And what is income “which is derived from sources within the United States”? That is what the rules of section 861 are supposed to determine. Because nonresident aliens and foreign corporations are taxed only on income from sources within the United States, it is necessary to identify the sources of income (and deductions) for them, which is why there are regulations for them.

The purpose of section 861 and its regulations is spelled out in the regulations themselves, in Treas. Reg. § 1.861-1(a):

“Part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder determine the sources of income for purposes of the income tax. These sections explicitly allocate certain important sources of income to the United States or to areas outside the United States, as the case may be....”

Tax protesters often quote the first sentence of that regulation, but not the second sentence. Why? Because the second sentence makes it clear that section 861 and its regulations exist only to determine geographical source, which is relevant only for nonresident aliens, foreign corporations, and certain other types of taxpayers.

But even if it were necessary to establish a “source” for all income in accordance with section 861, there are provisions in section 861 that specifically state that the incomes of most citizens is from sources within the United States.

For example, section 861(a) states that “The following items of gross income shall be treated as income from sources within the United States: ... (3) Compensation for labor or personal services performed in the United States;” (subject to certain exceptions not relevant here).

And the regulations state that “Gross income from sources within the United States includes compensation for labor or personal services performed in the United States irrespective of the residence of the payer, the place in which the contract for service was made, or the place or time of payment;” (subject to the exceptions stated in the statute, which are still not relevant here). Treas. Reg. § 1.861-4(a)(1).

But tax protesters ignore all of the definitions of sources of income within the United States and claim that nothing in section 861 applies to any U.S. citizen with U.S. income, citing Treas. Reg. § 1.861-8(f). Unfortunately, that regulation shows why the entire “section 861” argument makes no sense. The regulation is a list of “operative sections” which “require the determination of taxable income of the taxpayer from specific sources or activities.” All of the “operative sections” listed in the regulation are sections of the Internal Revenue Code that require a determination of taxable income from a specific foreign or domestic source or activity (that is, they require a determination of taxable income from less than all sources) and so require the application of the rules of section 861 to determine the income and deductions from that particular foreign or domestic source or activity.

For example, the first “operative section” listed in Treas. Reg. § 1.861-8(f) is a limit on the foreign tax credit formerly allowed by I.R.C. section 904(a)(2). A credit against U.S. taxes was allowed to U.S. citizens who paid taxes to foreign governments on foreign income, but the credit was limited to an amount equal to the federal income tax multiplied by a fraction, the numerator of which is the taxable income from foreign sources and the denominator of which is all taxable income. If you have foreign income on which you paid foreign taxes and wanted to claim a credit against your U.S. tax, you need to calculate your foreign taxable income in accordance with the rules of section 861.

The other “operative sections” cover matters such as “domestic international sales corporations,” nonresident aliens (or foreign corporations) engaged in a trade or business in the U.S., “foreign base company income,” tax preferences for foreign source income, foreign mineral income, foreign oil and gas extraction income, the exclusion from income for residents of Puerto Rico, the maximum income tax reduction for the Virgin Islands, income from Guam, the special deduction allowed under the China Trade Act, the exclusion of income for controlled foreign corporations, income from insurance of U.S. risks, income consequences of international boycotts, and taxable income from certain merchant marine vessels. If any of those provisions apply to you, then you must apply the rules of section 861 to determine the exclusion, credit, deduction, or taxable income governed by those provisions.

What happens if none of the “operative sections” apply to you? According to tax protesters, if none of the “operative sections” apply to you, then you have no taxable income at all. Of course, that’s not what the Code or regulations say. No where does section 861 or any of its regulation declare that any particular type of income is exempt from tax. It is the “operative sections” that provide rules for determining what income is included or excluded from the gross income of particular taxpayers. And, unless an “operative section” provides an exception, then the general rule of section 61 continues to apply and gross income (which is the basis for taxable income) means “all income.”

Briefly, the whole “section 861 argument” is based on the conflicting conclusions that (1) section 861 applies to U.S. taxpayers and (2) section 861 does not apply to U.S. taxpayers. Tax protesters try to have it both ways, by claiming that section 861 must apply to them and their taxable income must be determined according to its rules, and then by claiming that it doesn’t apply to them, and so they have no taxable income.

Needless to say, the courts have had no problem dismissing the argument that a citizen and resident of the United States is not taxed on income earned within the United States:

“Petitioner also contends that no Federal statute imposes a tax on the income of citizens or residents of the United States that is derived from sources within the United States. Instead, petitioner asserts that Federal income taxes are excise taxes imposed only on the privilege of nonresident aliens and foreign corporations to receive income from sources within the United States. Petitioner’s argument is unclear. Apparently, petitioner believes that the only sources of income for purposes of section 61 are listed in section 861, that income from sources within the United States is taxed only to nonresident aliens and foreign corporations pursuant to sections 871, 881, and 882, and that section 1461 is the only section of the Internal Revenue Code that makes anyone liable for the taxes imposed by sections 1 and 11.

“Section 61(a) defines gross income generally as ‘all income from whatever source derived,’ including, but not limited to, compensation for services and interest. Sec. 61(a)(1), (4). Section 63 defines and explains the computation of section ‘taxable income’. Section 1 imposes an income tax on the taxable income of every individual who is a citizen or resident of the United States. Sec. 1.1-1(a)(1), Income Tax Regs.; see Habersham-Bey v. Commissioner, 78 T.C. 304, 309 (1982).

“Under section 61(a)(1) and (4), petitioner clearly is required to include his wages, tokes, and interest in gross income.”

Aiello v. Commissioner, T.C. Memo. 1995-40.

“The arguments in Kaetz’s appellate briefs, which he shrouds in hyperbole and platitudes, do not further his position. Through linguistic gymnastics, Kaetz contorts the relevant sections of the Internal Revenue Code and the Treasury Regulations to deduce that he does not have taxable income for the years 1991-1997. He premises his argument, inter alia, on the belief that United States citizens only earn taxable ‘gross income’ when living and working outside the United States, and that the ‘Foreign Earned Income Form 2555 is the only form required to be filed[ ] by U.S. Citizens.’ Appellant’s Brief at 16-17, 18. He concludes his intricate deductive argument quite bluntly: ‘Goodbye Income Taxes on Citizens with domestic income.’ Id. at 18. The problem with his deduction is that it is based on false premises. Income earned in the United States, including salary, is taxable, see I.R.C. section 63, and ‘Gross Income’ can be quantified.”

Kaetz v. Internal Revenue Service, 225 F.3d 649, 2000 U.S. App. LEXIS 17068, 2000-2 U.S. Tax Cas. 50,544, 85 A.F.T.R.2d 2183, KTC 2000-312, Docket #99-3346 (3d Cir. 6/7/2000), (unpublished opinion), aff’g 1999 U.S. Dist. LEXIS 8309, 99-1 U.S. Tax Cas. 50,505, 83 A.F.T.R.2d 2536 (M.D.Pa. 1999).

“Plaintiff argues further that his remuneration is exempt from taxation under 26 U.S.C. § 861(a)(3)(C)(ii), and thus excludable under 26 U.S.C. § 61 and, by reference, excludable under Wisconsin law. Suffice it to say that if plaintiff wished to avail himself of § 861( a)(3)(C)(ii), he would have to show that his work was done for a foreign office, or an office in a United States possession, of a domestic business entity. He has not alleged this, and it is clear from the record that he performed his work in the State of Wisconsin for Wisconsin employers.”

Peth v. Breitzmann, 611 F. Supp. 50, 53-54 (E.D.Wis. 1985), 1985 U.S. Dist. LEXIS 21509, 85-1 U.S.T.C. ¶9321, 55 AFTR2d 1280 (complaints dismissed and sanctions imposed for filing frivolous actions “brought in bad faith”).

“At the hearing on respondent’s Motion For Summary Judgment, petitioner also claimed that ‘all of my gross income was received without the United States as defined in Subchapter N of 26 CFR 1.861-1’, and ‘I am not a citizen of the federal U.S. I make a living in the state of Illinois as a right, and I am not subject to the jurisdiction of the federal United States.’ “We find no support for petitioner’s position in the authorities he cites. ... “[P]etitioner’s position is not bolstered by the regulations under section 861. To the contrary, section 861(a)(1) and (3) provides that interest from the United States and compensation for labor or personal services performed in the United States (with exceptions not applicable here) are items of gross income which shall be treated as income from sources within the United States.”

Solomon v. Commissioner, T.C. Memo 1993-509, aff’d 42 F.3d 1391 (7th Cir. 1994).

“As a citizen of the United States during the years at issue, petitioner is subject to United States Federal income tax on his worldwide income. Sec. 1; Cook v. Tait, 265 U.S. 47 (1924); sec 1.1-1(a)(1) and (c), Income Tax Regs. It is unnecessary to determine whether that income was from sources within or without the United States since petitioner is not a nonresident alien. See sec. 861.”

Norman F. Dacey, T.C. Memo 1992-187.

“[Defendant’s] argument in favor of vacating judgment is almost incomprehensible, and, to the extent it is understandable, is meritless....
“Defendant on unnumbered pages five and six [of Defendant’s Memorandum in Support of his Motion to Vacate Judgment] analyzes several tax regulations, after which he contends: ‘Nonresident aliens and foreign corporations are liable for income tax from sources within the United States, where Citizens and residents of the several States are liable only for gross income from foreign sources and insular possessions of the United States.’ (Id. at 5.) ....

“Defendant’s arguments appear to boil down to the following: the judgment against Defendant is void because (1) the federal government has no power to impose income tax on him; and (2) the federal government did not comply with certain requirements found in the tax regulations when it acted against him to secure payment from him for unpaid taxes. Neither contention has merit. The first is tax protester rhetoric that contradicts over fifty years of tax law in this country. Plaintiff must pay income taxes; the federal government has the right to pursue him for unpaid taxes.”

United States v. Bell, 86 AFTR2d ¶2000-5209; CIV F 95-5346 OWW SMS (U.S.D.C. E.D.Ca. 7/24/2000).

“Petitioner contends that income is defined only by section 911 and the regulations under section 861 and that his receipts are excluded from those definitions. Neither section 911 nor section 861 operates to prevent section 61 from applying to petitioner’s receipts. See Solomon v. Commissioner, T.C. Memo. 1993-609, affd. without published opinion 42 F.3d 1291 (7th Cir. 1994).

“Petitioner’s reliance on section 911 is misplaced. Section 911(a) allows an exclusion from gross income for foreign earned income at the election of a qualified individual, defined as an individual whose tax home is in a foreign country. See sec. 911(d)(1). Petitioner had no foreign earned income and is not a qualified individual for purposes of section 911(a). Section 911(a) has no bearing on the taxation of petitioner’s receipts.

“Petitioner’s reliance on section 861 likewise is misplaced. Petitioner reads section 861 to provide that items not defined therein are not subject to tax. Section 861(a)(1) and (3) provides that interest from the United States and compensation for labor or personal services performed in the United States (with exceptions not applicable here) are items of gross income which shall be treated as income from sources within the United States. Nothing in section 861 operates to exclude from income any of petitioner’s receipts.”

Furniss v. Commissioner, T.C. Memo. 2001-137.

“[P]etitioners, by selectively analyzing statutes, regulations, and judicial authorities out of context, have reached the conclusion that their compensation for services, unemployment compensation, and interest do not constitute gross income.

“Petitioners argue: ... petitioners have no gross income pursuant to section 861 et seq. concerning gross income from sources within the United States and without the United States; ....

“Section 1 imposes an income tax on the income of every individual who is a citizen or resident of the United States. Sec. 1.1-1(a)(1), Income Tax Regs. Section 61(a) provides that except as otherwise provided in subtitle A (income taxes) gross income includes ‘all income from whatever source derived,’ including compensation for services and interest. Secs. 61(a)(1), (4). Section 85(a) provides that an individual’s gross income includes unemployment compensation. Ignoring these statutory provisions, petitioners argue that their compensation for services, unemployment compensation, and interest do not constitute gross income because these items of income are not listed in section 1.861-8(f), Income Tax Regs. Their argument is misplaced and takes section 1.861-8(f), Income Tax Regs., out of context. The rules of sections 861-865 have significance in determining whether income is considered from sources within or without the United States. The source rules do not exclude from U.S. taxation income earned by U.S. citizens from sources within the United States.”

Corcoran v. Commissioner, T.C. Memo. 2002-18, 2002 TNT 14-21 (1/18/2002) (penalty of 20% imposed for intentional disregard of rules and regulations; penalty of $2,000 imposed for filing a frivolous Tax Court petition), aff’d 2002 TNT 235-6, No. 02-71577 (9th Cir. 11/12/2002), (unpublished opinion), cert. den. 2003 TNT 97-4, No. 02-1481 (5/19/2003).

“Petitioner claims that ... his income is not from any of the sources listed in section 1.861-8(a), Income Tax Regs., and thus is not taxable; ....

“Petitioner’s arguments are reminiscent of tax-protester rhetoric that has been universally rejected by this and other courts. We shall not painstakingly address petitioner’s assertions ‘with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.’ Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984). Accordingly, we conclude that petitioner is liable for the deficiency determined by respondent.”

Williams v. Commissioner, 114 T.C. 136 (2000), (penalty of 25% imposed for failing to file a valid return; penalty of $5,000 imposed for filing a frivolous Tax Court petition).

“In his trial memorandum, petitioner alleged: (1) Income from sources not listed in section 861 is exempt from taxation; (2) income earned by U.S. citizens in the United States is not listed; and (3) petitioner is a U.S. citizen and has income only from domestic sources. ... Petitioner’s contention that his income is not taxable is incorrect as a matter of law.”

Rayner v. Commissioner, T.C. Memo 2002-30, (summary judgement granted to the Commissioner and a penalty of $5,000 was also imposed against Rayner for filing a frivolous petition); aff’d No. 02-60565 (5th Cir. 7/3/2003), (Sanctions of $4,000 imposed for filing a frivolous appeal).

“In any event, assuming, arguendo, that the court has subject matter jurisdiction of the case at bar, Loofbourrow’s claim that his wages do not derive from a taxable source and are thereby exempt from federal income tax is subject to dismissal and/or summary judgment, as it is without factual or legal basis. See, e.g., [Mark] Christopher [Corcoran v. Commissioner, T.C. Memo 2002-18], 2002 WL 71029 (rejecting claim that compensation for services does not constitute gross income because this item of income is not listed in Treasury regulation 1.861-8(f); Williams v. Commissioner, 114 T.C. 136, 138 (2000) (dismissing claim that income was not taxable because it was not from any of the sources listed in 1.861-8 of the Treasury regulations as ‘reminiscent of tax protester rhetoric that has been universally rejected’); Aiello v. Commissioner, T.C. Memo. 1995-40, No. 16811-93, 1995 WL 33283 (U.S. Tax Ct. Jan. 30, 1995) (rejecting claim that the only sources of income for purposes of 61 are listed in 861). Indeed, 26 U.S.C. 1 imposes an income tax on the income of every individual who is a citizen or resident of the United States, and 61 defines ‘gross income’ as ‘all income from whatever source derived’ including, but not limited to, compensation for services. See 26 U.S.C. 16, 1(a)(1), (4). Section 861 specifically includes remuneration derived from ‘Personal services -- Compensation for labor or personal services performed in the United States’ as income from sources within the United States. 26 U.S.C. 861(a)(3); see Solomon v. Commissioner, T.C. Memo 1993-509, No. 1084-93, 1993 WL 444615 (U.S. Tax. Ct. Nov. 3, 1993), aff’d, 42 F.3d 1391 (7th Cir. 1994). Like the petitioner in Solomon, Loofbourrow’s effort to ‘find some semantic technicality which will render him exempt from Federal income tax, which applies generally to all U.S. citizens and residents,’ is unavailing. Id. It is well settled that wages fall within the scope of 26 U.S.C. 61 and are thus subject to federal income tax. See Commissioner v. Kowalski, 434 U.S. 77, 83 (1977) (wages are taxable income).

“Here, Loofbourrow ignores the statutory provisions of 26 U.S.C. 1 and 61, arguing that his compensation does not constitute gross income because it is not an item of income listed in 26 C.F.R. 1.861-8(f). Loofbourrow’s argument, however, is misplaced and takes the regulations out of context. As noted by the Tax Court in [Corcoran]:

“’The rules of sections 861-865 have significance in determining whether income is considered from sources within or without the United States. The source rules do not exclude from U.S. taxation income earned by U.S. citizens from sources within the United States.’

“2002 WL 71029 [T.C. Memo 2002-18]; see also Great-West Life Assur. Co. v. United States, 678 F.2d 180, 183 (Ct. Cl. 1982) (‘The determination of where income is derived or ‘sourced’ is generally of no moment to either United States citizens or United States corporations, for such persons are subject to tax under I.R.C. 1 and I.R.C. 11, respectively, on their worldwide income.’).

“In fact, Loofbourrow’s contentions are akin to the assertions of ‘those persons who are attempting to avoid their fair share of the costs of the government that organizes the society in which they live.’ United States v. Montgomery, 778 F.2d 222, 224 (5th Cir. 1985). Nevertheless, ‘courts are not powerless in these circumstances and are not required to expend judicial resources endlessly entertaining repetitive arguments. Nor are opposing parties required to bear the burden of meritless litigation.’ Lonsdale v. United States, 919 F.2d 1440, 1447-48 (10th Cir. 1990). Hence, this court shall not further ‘painstakingly address petitioner’s assertions “with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.” ’ Williams, 114 T.C. at 139 (quoting Crain v. Commissioner, 737 F.2d 1417, 1418 (5th Cir. 1984) (holding that court is ‘not obliged to suffer in silence the filing of baseless, insupportable appeals presenting no colorable claims of error and designed only to delay, obstruct, or incapacitate the operations of the courts or any other governmental authority’ through ‘a hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish’).

“In light of the abundance of authority regarding the taxability of wages earned in the United States by citizens of the United States such as Loofbourrow, the IRS did not abuse its discretion by assessing a frivolous return penalty against him. Therefore, dismissal, or, in the alternative, summary judgment is warranted in this action, as Lootbourrow has failed to present a claim that would entitle him to relief. There exist no outstanding issues of material fact, and the United States is entitled to judgment as a matter of law.”

Loofbourrow v. Commissioner, 208 F. Supp. 698, 709-710, 2002 TNT 112-18 (S.D. Tex. 2002), (frivolous filing penalty upheld).

“Moreover, even if Mr. Sulla [taxpayer’s counsel] had not been presented with sufficient evidence contradicting the 861 argument, the 861 argument, on its face, is inherently improbable, because it leads to conclusions that defy common sense; i.e., U.S. citizens and residents earning income within the United States are taxable only on income earned from possessions, corporations, and the Federal Government, and the vast amount of wages and interest paid to U.S. citizens and residents is not taxable under the Internal Revenue Code. We agree with what the Court of Appeals for the Tenth Circuit said in Charczuk v. Commissioner, 771 F.2d 471, 475 (10th Cir. 1985), affg. T.C. Memo. 1983-433, before imposing costs on a taxpayer’s counsel under 28 U.S.C. sec. 1927: ‘Courts are in no way obligated to tolerate arguments that thoroughly defy common sense.’ The conclusions to be drawn from the 861 argument thoroughly defy common sense. We find that Mr. Sulla acted recklessly in making the 861 argument and, thus, he acted in bad faith.”

Takaba v. Commissioner, 119 T.C. 18 (2002), (sanctions of $15,000 imposed against the taxpayer and costs of $10,500 imposed against his lawyer for frivolous proceedings.)

“Petitioners point out that section 61(a) uses the word ‘source’ but that section 61 does not go on to define the ‘sources’ which produce income taxable by the United States. Petitioners therefore conclude that in order to identify the ‘sources’ of income that are taxable reference must be made to the income ‘sourcing’ rules of sections 861-865 and to respondent’s regulations thereunder, specifically section 1.861- 8(f)(1), Income Tax Regs.

Petitioners misread section 61. That section prefaces its use of the word ‘source’ by the word ‘whatever’, thereby making the particular source of a U.S. taxpayer’s income (and the income sourcing rules of sections 861-865) irrelevant for purposes of the definition of income under section 61.”

Dashiell v. Commissioner, T.C. Memo. 2004-210 (9/20/2004), (emphasis in original).

Sanctions of $15,000 were imposed against the taxpayers in Snyder v. Commissioner, T.C. Memo. 2001-255. Among other things, the Snyders disputed “the ‘statutory grouping of gross income and the residual grouping of gross income’ as it may relate to this matter pursuant to 26 CFR section 1.861-8(a)(4),” which the Tax Court described as “tax-protester rhetoric that we are all too familiar with, and which courts have rejected time and time again,” citing Williams v. Commissioner, 114 T.C. 136 (2000).

On September 26, 2000, George and Dorothy Henderson, of Roseville, California, were convicted in the U.S. District Court for the Eastern District of California of conspiring to defraud the IRS, aiding in the presentation of false tax returns, and other charges arising out of their sale of bogus trust schemes to generate false deductions for clients, as well as helping clients to hide income by routing monies through a variety of domestic and foreign accounts. According to an article in the New York Times, Mr. and Mrs. Henderson decided to argue at their sentencing that “they were exempt from tax under Section 861 of the Internal Revenue Code, contending that the statute excludes most Americans from income taxes.” Mrs. Henderson’s lawyer, Donald Dorfman, tried to discourage his client, but said that “She insisted on speaking and telling the judge about the 861 position and how as a sovereign citizen of California the federal courts had no jurisdiction and all sorts of gibberish.” After listening to their arguments, Judge Garland E. Burell Jr. added five months to Mrs. Henderson’s prison sentence and added eight months to Mr. Henderson’s prison sentence. See, “California Couple Sentenced for Helping Clients Evade Taxes,” by David Cay Johnston, New York Times (2/23/2001).

One of the principal advocates of the “section 861” argument, Larken Rose, stopped filing federal income tax returns in 1998 and began publicly asking the government to prosecute him in 2001. He was unable to convince a jury that he believed in good faith that his income was not “taxable” because of section 861, and was convicted on five counts of willfully failing to file tax returns, which earned him 15 months in federal prison. United State v. Rose, No. 2:05-CR-01101 (U.S.D.C. E.D.Pa. 8/12/2005).

The U.S. Department of Justice has obtained preliminary injunctions against several other promoters of the “section 861” argument on the grounds that they were promoting schemes that were false or fraudulent, and were assisting or advising taxpayers to prepare documents that understated tax liability. The courts have ordered the defendants to turn over lists of their clients to the IRS so that the IRS may collect the taxes that have been evaded. United States v. Hearn, No. 1:01-CV-3058 (N.D. Ga. 2001); United States v. Bosset, No. 8:01-cv-2154-T-26TBM (M.D. Fla. 2001); United States v. Rosile, 202 TNT 132-17, No. 8:02-CV-466-T-17MSS (U.S.D.C. M.D.Fl. 6/10/2002); United States v. Bell, 238 F.Supp.2d 696, No. 1:CV-01-2159 (U.S.D.C. M.D. Pa. 1/10/2003), aff’d 414 F.3d 474, No. 04-1640 (3d Cir. 7/12/2005); United States v. Prater et al., 2002 U.S. Dist. LEXIS 25685, 2003 TNT 68-14, No. 8:02-CV-2052-T-23MSS (U.S.D.C. M.D.Fl. 12/19/2002), (preliminary injunction also issued against Richard W. Cantwell); United States v. Farnell, No. 8:02-CV-1742-T-26TBM (U.S.D.C. M.D.Fl. 1/21/2003); United States v. Welti, 90 A.F.T.R.2d (RIA) 7472, 2003 TNT 69-43, No. C-1-02-243 (U.S.D.C. S.D.Oh. 2/14/2002); United States v. Mayer, 2005 TNT 87-11, No. 8:03-cv-415-T-26TGW (U.S.D.C. M.D.Fl. 3/10/2005).

A permanent injunction has been issued in United States v. Bosset, 2003 TNT 53-12, No. 8:01-cv-2154-T-26TBM (U.S.D.C. M.D.Fl. 2/27/2003), as well as several other cases in which preliminary injunctions were first obtained.

All of those courts found that the section 861 argument was “frivolous” and without any merit, having been uniformly rejected by courts beginning in 1993 (a reference to the Solomon decision quoted above). In entering a temporary injunction against Douglas P. Rosile Sr. from preparing any additional income tax returns, the U.S. District Court found that Rosile knew or should have known that the argument was frivolous because it is “absurd on its face.” United States v. Rosile, 202 TNT 132-17, No. 8:02-CV-466-T-17MSS (U.S.D.C. M.D.Fl. 6/10/2002).

A permanent injunction has also been entered in a seventh civil suit, United States v. Haraka, No. 02-CV-5340 (U.S.D.C. N.J. 3/28/2003).

For the Department of Justice press releases on these court orders, see “Justice Department Seeks Injunctions Against Three Promoters to Halt Nationwide Bogus-Tax-Refund Scheme,” U.S. Dept. of Justice (11/15/2001); “Federal Court in Tampa Orders Tax Fraud Promoter to Stop Preparing Bogus Tax Returns, Promoting Fraudulent Tax Scheme,” U.S. Dept. of Justice (3/27/2002); “Justice Department Obtains Permanent Injunction Against Atlanta Tax Return Preparer,” U.S. Dept. of Justice (2/1/2002); “Justice Department Sues Preparer of Bogus Tax Refund Claims,” U.S. Dept. of Justice (3/14/2002); “Federal Court in Tampa Orders Former Accountant to Stop Preparing Federal Tax Returns,” U.S. Dept. of Justice (6/11/2002); “Federal District Court in Harrisburg, Pennsylvania, Orders Individual to Stop Promoting a Fraudulent Tax Scam,” U.S. Dept. of Justice (1/10/2003); “Florida Man Ordered to Halt Tax Scam,” U.S. Dept. of Justice (1/23/2003);

A separate suit was brought by Thurston P. Bell against the United States, alleging that the investigation into his web site violated his First Amendment rights. That suit was dismissed on 9/30/2002, the court holding that it did not have jurisdiction over the tax issues, that the first amendment issues were “inextricably intertwined,” and that the First Amendment does not protect “commercial speech which promotes an illegal activity or transaction,” citing United States v. White, 769 F.2d 511, 516 (8th Cir. 1985), United States v. Kaun, 827 F.2d 1144, 1165 (5th Cir. 1985), and Nat’l Commodity and Barter Ass’n v. United States, 843 F.Supp. 655, 665 (D.C. Col. 1993), aff’d, 42 F.3d 1406 (10th Cir. 1994). Bell v. Rossotti, 2002 TNT 223-18, Civil Action No. 1:CV-01-1725 (U.S.D.C. M.D.Pa. 9/30/2002). Mr. Bell raised the same argument in his defense against the action by the United States for an injunction, and his First Amendment claims were rejected in that proceeding also. United States v. Bell, 238 F.Supp.2d 696, No. 1:CV-01-2159 (M.D. Pa. 1/10/2003), (permanent injunction entered 1/29/2004), aff’d 414 F.3d 474, No. 04-1640 (3d Cir. 7/12/2005).

In Notice 2001-40, the Internal Revenue Service advised taxpayers that failing to report income earned in the United States “has no basis in law” and that the proponents of the section 861 argument “misread the Code and Treasury Regulations.” After refuting the section 861 argument and citing many of the cases cited above, the IRS goes on to advise taxpayers that filing returns that do not include all of the income of the taxpayer may result in penalties such as the accuracy-related penalty under section 6662, the frivolous return penalty under section 6702, failure to file or failure to pay penalties under section 6651, and civil fraud penalties under section 6663, or even criminal prosecution. Notice 2001-40, 2001-26 I.R.B. 1355.

The “section 861” argument is specifically addressed by the IRS in Fact Sheet FS-2001-06 (4/3/2001), IRS Notice 2001-40, 2001-1 C.B. 1355, 2001-26 I.R.B. 1355 (6/25/2001), Revenue Ruling 2004-30, 2004-12 I.R.B. 622 (which also describes the various civil and criminal penalties that might apply to someone who relies on the section 861 argument to evade tax), and in an on-line publication, “The Truth about Frivolous Tax Arguments” prepared by the IRS Chief Counsel’s office.

Also, the claim that “United States citizens and residents are not subject to tax on their wages or other income derived from sources within the United States, as only foreign based income or income received by nonresident aliens and foreign corporations from sources within the United States is taxable, and similar arguments described as frivolous in Rev. Rul. 2004-30, 2004-1 C.B. 622” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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The income tax does not apply to citizens outside of the District of Columbia and territories of the United States because the way “United States” is defined in the Internal Revenue Code does not include the states of the United States.

This argument is the result of functional illiteracy.

Section 7701(a)(9) of the Internal Revenue Code states that:

“The term ‘United States’ when used in a geographical sense includes only the States and the District of Columbia.”

Well, that contradicts the tax protesters, because it says that “United States” includes “the States.” But the tax protesters then turn to the definition of “State”:

“The term ‘State’ shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.”

I.R.C. section 7701(a)(10).

According to tax protesters, this definition excludes the states of the United States from the definition of “State,” and “State” means only the District of Columbia. There are several things wrong with this “argument”:

So where do tax protesters get the idea that “includes” might be restrictive? Mainly from wishful thinking and poor reading skills.

Section 7701(c) of the Internal Revenue Code expressly states that using the word “includes” in a definition does not exclude anything that would otherwise be included in the meaning of the word being defined. So a definition of “State” that includes the District of Columbia does not exclude the States of the United States from the definition. (For more on the use—and misuse—of the word “includes,” see A belief that the word “includes” is restrictive.)

What have the courts said about the claim that the United States does not include the states of the United States?

“In an affidavit attached to his amended petition, petitioner sets forth numerous, tax-protester type legal arguments, including, in petitioner’s words, the following propositions:
“That the Republic of Illinois is ‘without the United States’;
...
“The Congress excluded the 50 States from the definition of ‘United States,’ ...

“Petitioner attempts to argue an absurd proposition, essentially that the States of Illinois is not part of the United States. His hope is that he will find some semantic technicality which will render him exempt from Federal income tax, which applies generally to all U.S. citizens and residents. Suffice it to say, we find no support in any of the authorities petitioner cites for his position that he is not subject to Federal income tax on income he earned in Illinois. ... Petitioner’s arguments are no more than stale tax protester contentions long dismissed summarily by this Court and all other courts which have heard such contentions.”

Nieman v. Commissioner, T.C. Memo 1993-533.

“Ward reaches this twisted conclusion [that the Internal Revenue Code only applies to individuals located within Washington, D.C., the federal enclaves within the states, and the territories and possessions of the United States] by misinterpreting a portion of the Income Tax Code. The 1913 Act defined the words ‘state’ or ‘United States” to ‘include’ United States territories and the District of Columbia; Ward asks this court to interpret the word ‘include’ as a term of limitation, rather than of definition. ... We find each of appellant’s contentions to be utterly without merit.”

United States of America v. Ward, 833 F.2d 1538 (11th Cir. 1987) (conviction of tax evasion affirmed, despite arguments of Lowell H. Beecraft Jr.).

“Steiner also argued that the word ‘includes,’ which appears throughout the tax laws, limits the court’s jurisdiction under the tax laws. This argument has been specifically rejected in United States v. Condo, 741 F.2d 238, 239 (9th Cir. 1984), cert. denied, 469 U.S. 1164 (1985), in which this court held that the word ‘includes’ is one of expansion, not limitation.”

United States v. Steiner, 963 F.2d 381 (9th Cir. 1992).

“Citing 26 U.S.C. § 3121(e)(1) & (2), the respondent argues that the IRS was without territorial jurisdiction to issue the summons in this case because the Internal Revenue Code only applies to individuals living in one of the territories specifically mentioned in that rule. Unfortunately, the respondent has misinterpreted the statute. This rule, appearing in the ‘definitions’ section, says that the ‘term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, or American Samoa’ (emphasis added). This is a rule of inclusion, not exclusion. Nowhere in this rule does it exclude the fifty United States from the definition of ‘State’ under the Internal Revenue Code. To interpret the rule this way would be absurd.”

United States v. Teresa Hopper, 2005 TNT 215-10, No. 05-MC-172 (U.S.D.C. E.D.N.Y. 10/29/2005).

See also, Depew v. United States, 50 F. Supp. 2d 1009,1015 (D. Colo. 1999) (finding arguments that plaintiff was neither a “person” nor a “taxpayer” within federal income tax laws based upon his nonresident status frivolous).

The claim that “the United States does not include all or a part of the physical territory of the 50 States and instead consists of only places such as the District of Columbia, Commonwealths and Territories (e.g., Puerto Rico), and Federal enclaves (e.g., Native American reservations and military installations),” or similar arguments described as frivolous in Rev. Rul. 2004-28, 2004-12 I.R.B. 624, 2004-1 C.B. 624, or Rev. Rul. 2007-22, 2007-14 I.R.B. 866, has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

In the same notice, the claim that “[o]nly certain types of taxpayers are subject to income and employment taxes, such as ... residents of the District of Columbia or the Federal territories, or similar arguments described as frivolous in Rev. Rul. 2006-18, 2006-15 IRB 743” was also identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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The income tax only applies to the domestic income of nonresident aliens.

This whacky notion seems to be based on entirely on a document published by the Internal Revenue Service in 1916. In Treasury Decision 2313, issued less than three months after the Supreme Court had upheld the constitutionality of the income tax enacted in 1913, the Commissioner of Internal Revenue issued a direction to collectors of internal revenue to collect income tax on dividends and interest paid by domestic corporations to nonresident aliens, stating (in relevant part):

“Under the decision of the Supreme Court of the United States in the case of Brushaber v. Union Pacific Railway Co., decided January 24, 1916, it is hereby held that income accruing to nonresident aliens in the form of interest from the bonds and dividends on the stock of domestic corporations is subject to the income tax imposed by the act of October 3, 1913.”

From this, tax protesters conclude that Frank R. Brushaber (the plaintiff in the Brushaber decision) was a nonresident alien, or was an agent for nonresident aliens. But the opinion of the District Court clearly states that Brushaber was a citizen and resident of New York, and there is nothing in the District Court or Supreme Court opinions or records to suggest that Brushaber was acting for anyone other than himself.

In Treasury Decision 2313, all that the Commissioner was saying is that the income tax is constitutional, and now we are going to start collecting the tax from nonresident aliens as well citizens or residents. There is nothing in that Treasury Decision, or any other announcement of the government before or since, to suggest that the income tax should not be collected from citizens or residents of the United States.

Furthermore, even if the Commissioner intended to announce that the federal income tax applied only to nonresident aliens, that announcement could not change the purpose or effect of the statutes enacted by Congress, which clearly apply to every citizen or resident of the United States.

The claim that “United States citizens and residents are not subject to tax on their wages or other income derived from sources within the United States, as only foreign based income or income received by nonresident aliens and foreign corporations from sources within the United States is taxable, and similar arguments described as frivolous in Rev. Rul. 2004-30, 2004-1 C.B. 622” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

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Nothing in the Internal Revenue Code makes an ordinary citizen liable for the income tax.

More semantic games from people desperate to evade taxes.

Tax protesters claim that, before anyone can be liable for a tax, there must be a statute that specifically says that the person is liable for the tax (and must use the word “liable”). However, that is not what the law requires.

In its various subsections, section 1 of the Internal Revenue Code says that

“There is hereby imposed on the taxable income of every [married individual, surviving spouse, head of a household, unmarried individual, or married individual filing a separate return] a tax determined in accordance with the following table.. ..”

As explained in the regulations:

“Section 1 of the Code imposes an income tax on the income of every individual who is a citizen or resident of the United States ....”

Treas. Reg. § 1.1-1(a)(1).

The word “impose” means “to establish or apply as compulsory; levy.” So how can a tax be “imposed” if no one is compelled to pay it? The answer is that it can’t. If a tax is imposed on a person’s income, then that person is liable for the tax as a matter of law.

In a bankruptcy dispute over the allowance of interest on unpaid taxes as a claim against the estate of the bankrupt, the Supreme Court stated the self-evident proposition that:

“The imposition of a tax is certainly a function of government and creates an obligation....”

U.S. v. Childs, 266 U.S. 304 (1924).

Also, I.R.C. section 6151 directs that any person required to file a return “shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return.”

The words “shall ... pay” certainly look like an obligation to pay, and the Supreme Court has held that the United States may enforce a stamp tax through a suit to collect the amount of the tax from the person required to pay the tax, even though the statute did not impose any personal liability for the tax, stating:

“When a statute says that a person shall pay a given tax, it obviously imposes upon that person the duty to pay...”

U.S. v. Chamberlin, 219 US 250 (1910).

As explained below, the obligation to file a return is established by I.R.C. section 6012. A person having more than a stated minimum of income is required to file a return and, according to section 6151, is required to pay the tax shown on the return.

So what have the courts said about the claim that there is no one liable for the tax imposed on their incomes?

“The payment of income taxes is not optional ... and the average citizen knows that payment of income taxes is legally required.”

Schiff v. United States, 919 F.2d 830, 834 (2nd Cir. 1990).

“Purportedly in support of his claim, plaintiff submitted a statement along with the Form 1040, in which he argues that no provision of the IRC establishes an income tax ‘liability.’ The plain language of the IRC, however, belies this assertion, stating in section 1 that a tax is ‘hereby IMPOSED on the taxable income of every individual’ (emphasis added). Although plaintiff attempts to distinguish between ‘imposing’ a tax and creating a ‘liability’ for a tax, there is no difference. Every individual has an affirmative duty to pay taxes.”

Porcaro v. United States, 84 AFTR2d 99-5547, No. 99-CV-60406-AA (U.S.D.C. E.D. Mich. October 25, 1999).

“Sasscer makes the puzzling argument that section 1461 is the only provision in the Internal Revenue Code that imposes liability for payment of a tax on ‘income.’ Without belaboring the issue, the Court notes that 26 U.S.C. section 1 could hardly be more clear in imposing a tax on ‘income.’”

United States v. Sasscer, 86 AFTR2d 2000-5317, n. 3, 2000 TNT 186-76, No. Y-97-3026 (D.C. Md. 8/25/2000).

“Plaintiff’s arguments are no less frivolous here. [Footnote omitted.] First, Plaintiff argues the Code does not impose a tax ‘liability’. The plain language of the Code belies this, stating the tax is ‘imposed’. See 96 [sic] U.S.C. section 1. He attempts to distinguish between ‘imposing’ a tax and creating a ‘liability’ for tax. The Court fails to see a difference. Individuals have an affirmative duty to pay taxes.”

Tornichio v. United States, 81 AFTR2d 98-582, KTC 1998-71 (N.D.Ohio 1998), (suit for refund of frivolous return penalties dismissed and sanctions imposed for filing a frivolous refund suit), aff’d 1999 U.S. App. LEXIS 5248, 99-1 U.S. Tax Cas. (CCH) 50,394, 83 AFTR2d 99-579, KTC 1999-147 (6th Cir. 1999), (with sanctions imposed for filing a frivolous appeal).

“Appellants’ argument that the Internal Revenue Code does not define income or impose income tax liability on individuals is also meritless. 26 U.S.C. section 1 clearly imposes income tax liability on individuals.”

Liddane v. Commissioner, KTC 2000-28, No. 99-5499 (3d Cir. 1/14/2000), aff’ng T.C. Memo 1999-330 (referring to “the same partially incomprehensible but thoroughly frivolous arguments that they are not liable for Federal income taxes,” the Tax Court imposed sanctions of $10,000 for each docketed case for filing frivolous petitions).

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: ... (7) no statutory authority exists for imposing an income tax on individuals....”

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“The Plaintiffs further assert, in their Reply Memorandum dated September 12, 2005, that the ‘IRS has repeatedly refused to show [Plaintiffs] where in the [Internal Revenue] Code it makes [Plaintiffs] “liable for” the tax they claim is owed.’ Plfs.’ Reply at p. 7. The Plaintiffs allege that it is ‘abundantly unclear’ what the term taxpayer, as used throughout the IRC, means, and state that ‘when [the United States] can show where [Plaintiffs are] ‘subject to” or “liable for” a so-called tax, at that point [Plaintiff] will gladly pay the tax.’ Id. At 4, 10. However, the Government does not have the burden of showing the Plaintiffs ‘where’ they are ‘subject’ or ‘liable for’ the tax before the tax is paid. The comprehensive administrative enforcement scheme and judicial review process with which the Government is required to proceed under the IRS code is well established and none of it requires the Government to answer the Plaintiffs’ philosophical questions regarding the tax system. For a clear explanation of ‘where in the law subjects the Plaintiffs to tax,’ the court directs the Plaintiffs’ attention to Amendment XVI of the Constitution and the Internal Revenue Code, 26 U.S.C. § 1, which is entitled ‘Tax Imposed.’”

Celauro v. United States, 411 F. Supp. 2D 257, 269, 2006 U.S. Dist. LEXIS 3147, 2006-1 U.S. Tax Cas. (CCH) P50,168, 97 A.F.T.R.2d (RIA) 761, No. 05-cv-02245-ADS-WDW (U.S.D.C. E.D. N.Y. 1/28/2006).

See also, United States v. Moore, 692 F.2d 95 (10th Cir. 1979); United States v. Slater, 545 F.Supp. 179 (Del. 1982).

An attorney named Thomas J. Carley argued before the United States Circuit Court of Appeals for the Second Circuit that “[n]owhere in any of the Statutes of the United States is there any section of law making any individual liable to pay a tax or excise on ‘taxable income.’” The Second Circuit responded that “Section 1 of the Internal Revenue Code of 1954 (26 U.S.C.) (hereinafter the Code) provides in plain, clear and precise language that ‘[t]here is hereby imposed the taxable income of every individual ... a tax determined in accordance with’ tables set-out later in the statute. ... Despite the appellant’s attempted contorted construction of the statutory scheme, we find that it coherently and forthrightly imposed upon the appellant tax upon his income for the year 1980.” Ficalora v. Commissioner of Internal Revenue, 751 F.2d 85, 88 (2d Cir. 1984), cert. den. 471 U.S. 1005 (1985).

Oddly enough, the same attorney raised nearly the identical argument before the Eighth Circuit, arguing that there was “no law imposing an income tax” on his clients. The Eighth Circuit held that the appeal was “frivolous” and imposed a penalty on the appellants of double the Commissioner’s costs of the appeal. Lively v. Commissioner of Internal Revenue, 705 F.2d 1017, 1018 (8th Cir. 1983).

Even more incredibly, only a year after losing the Lively appeal, and six months after losing the Ficalora appeal, the same attorney, Thomas J. Carley, raises the same idiot issue with the 10th Circuit, questioning “Whether there is any law or statute imposing an income tax on appellants for the year 1977 and, if such a law or statute is claimed to exist, what is the precise citation of such law or statute?” The 10th Circuit quoted from both the Ficalora and Lively opinions in answer to his question, and then spent the rest of the opinion explaining why it was going to impose sanctions on Mr. Carley personally (not his clients).

“It is obvious that despite having full knowledge of the learned opinions of two different Article III courts and the accurate reasoning of the Tax Court in Manley [v. Commissioner of Internal Revenue, 46 T.C.M. 1359 (1983), another case lost by Mr. Carley)] concerning his arguments, Carley has failed to learn that he has no right to occupy the time of such courts with frivolous, unreasonable and vexatious proceedings, and that if he does so, he exposes not only his clients but also himself personally to sanctions.”

Charczuk v. Commissioner of Internal Revenue, 771 F.2d 471, 474 (10th Cir. 1985).

The court also referred to Mr. Carley’s arguments as “meritless,” “preposterous,” “nearly silly,” and “thoroughly defy[ing] common sense.”

As silly as this claim might be, the IRS has publicly refuted it.

“The requirement to file an income tax return is explicitly stated in sections 6011(a), 6012(a), and 6072(a) [of the Internal Revenue Code] and corresponding Treasury Regulations. In addition, section 6151 requires taxpayers to submit payment of their taxes with their tax returns. Under these provisions of the Code, any taxpayer who has received more than a statutorily determined amount of gross income during the tax year is required to file a return for the year and pay tax on the income.”

Rev. Rul. 2007-20, 2007-14 IRB 863, 864.

And so the claim that “Nothing in the Internal Revenue Code imposes a requirement to file a return or pay tax” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Tax Protester “Evidence”

Tax protesters like to claim that the IRS and the courts have “never shown them the law” that makes them liable for the federal income tax, and therefore the law must not exist. But as shown above the courts have repeatedly cited sections 1, 6012, and 6151, but tax protesters pay no attention.

The IRS has also published numerous documents citing the laws that require that returns be filed and taxes be paid, of which Rev. Rul. 2007-20, cited and quoted above, is only the most recent. The IRS now has a web page devoted entirely to frivolous arguments, which presently includes the following:

“The requirement to pay taxes is not voluntary and is clearly set forth in section 1 of the Internal Revenue Code, which imposes a tax on the taxable income of individuals, estates, and trusts as determined by the tables set forth in that section.  (Section 11 imposes a tax on the taxable income of corporations.)

Furthermore, the obligation to pay tax is described in section 6151, which requires taxpayers to submit payment with their tax returns.  Failure to pay taxes could subject the noncomplying individual to criminal penalties, including fines and imprisonment, as well as civil penalties.”

“The Truth About Frivolous Tax Arguments,” Section A.2 (“Contention: Payment of tax is voluntary”) (11/30/2006).

Tax protesters can claim that “no one has shown me the law” only because they have their eyes tightly shut.

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Nothing in the Internal Revenue Code requires an ordinary citizen to file a return.

This is a ridiculous claim. Section 6012(a) of the Internal Revenue Code plainly states that “Returns with respect to income taxes under Subtitle A shall be made by the following: (1)(A) Every individual having for the taxable year gross income which equals or exceeds the exemption amount....”

And Treas. Reg. § 1.6012-1(a)(6) provides that “Form 1040 is prescribed for general use in making the return required under this paragraph.”

Tax protesters sometimes claim that returns are required only of “persons liable” in accordance with section 6001, and that no return is required unless there is first a statute making the taxpayer “liable.” Unfortunately for tax protesters, section 6001 is only a general rule that applies to taxes in the absence of a more specific rule, the specific rule for income tax returns is found in section 6012, and section 6012 says nothing about any “person liable.” Section 6012 requires a person to file a return if the person has more than a certain amount of gross income. Because the obligation to file is based on gross income and not taxable income, there is no mention of any tax liability. (Because of deductions from gross income, there may be no taxable income, and so the taxpayer may be required to file a return even if there is no tax liability.)

Section 6012 therefore provides a very clear and very mechanical rule that requires people to file returns if they have more than a certain amount of income. If the return shows that tax is due, then section 6151 directs the person filing the return to pay the tax. (This is explained above in more detail.)

And so the courts have held that individuals are required to file tax returns.

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: ... (9) individuals are not required to file tax returns fully reporting their income....”

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“The statutes themselves require the payment of the tax and the filing of a return. 26 U.S.C. § 6012. ... [The] duty to pay those taxes is manifest on the face of the statutes, without any resort to IRS rules, forms or regulations.”

United States v. Bowers, 920 F.2d 220, 222 (4th Cir. 1990).

“Upon review of May’s amended peition, we find no allegations of fact which could give rise to a valid claim; rather, the complaint merely contains conclusory assertions attacking the constitutionality of the Internal Revenue Code and its application to the taxpayer.[Footnote omitted.] Tax protest cases like this one raise no genuine controversy; the underlying legal issues have long been settled. See, e.g., Abrams, 82 T.C. at 406-07 (citing cases rejecting similar arguments). Because May’s petition raised no justiciable claims, the Tax Court properly dismissed the petition for failure to state a claim.”

May v. C.I.R., 752 F.2d 1301, 1302 (8th Cir. 1985), (among other things, May’s amended complaint alleged that “The Respondent has added penalties for Petitioner not filing a return (1040) when in fact there is NO SECTION of the Internal Revenue Code that ‘REQUIRES’ anyone to file.” 752 F.2d at 1304, note 3).

“The assertion that the filing of an income tax return is voluntary is, likewise, frivolous. Title 26, United States Code, Section 6012(a)(1)(A), ‘requires that every individual who earns a threshold level of income must file a tax return.’ [citation omitted] Failure to file an income tax return subjects an individual to criminal penalty.”

United States v. Hartman, 915 F.Supp. 1227 (M.D.Fla. 1996).

See also, United States v. Pottorf, 769 F.Supp. 1176, 1183 (D.Kan. 1991).

As silly as this claim might be, the IRS has publicly refuted it.

“The requirement to file an income tax return is explicitly stated in sections 6011(a), 6012(a), and 6072(a) [of the Internal Revenue Code] and corresponding Treasury Regulations. In addition, section 6151 requires taxpayers to submit payment of their taxes with their tax returns. Under these provisions of the Code, any taxpayer who has received more than a statutorily determined amount of gross income during the tax year is required to file a return for the year and pay tax on the income.”

Rev. Rul. 2007-20, 2007-14 IRB 863, 864.

And so the claim that “Nothing in the Internal Revenue Code imposes a requirement to file a return or pay tax” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Tax Protester “Evidence”

Tax protesters like to claim that the IRS and the courts have “never shown them the law” that requires them to file a return, and therefore the law must not exist. But as shown above the courts have repeatedly cited section 6012, but tax protesters pay no attention.

The IRS has also published numerous documents citing the laws that require that returns be filed and taxes be paid, of which Rev. Rul. 2007-20, cited and quoted above, is only the most recent. In fact, the law requiring the filing of a return is cited in the instructions to Form 1040 itself. The “Disclosure, Privacy Act, and Paperwork Reduction Act Notice” on page 80 of the 2006 instructions to Form 1040 includes the following:

“Our legal right to ask for information is Internal Revenue Code sections 6001, 6011, and 6012(a), and their regulations. They say that you must file a return or statement with us for any tax you are liable for. Your response is mandatory under these sections.”

The IRS now has a web page devoted entirely to frivolous arguments, which presently includes the following:

“The requirement to file an income tax return is not voluntary and is clearly set forth in sections 6011(a), 6012(a), et seq., and 6072(a). See also Treas. Reg. § 1.6011-1(a).”

“The Truth About Frivolous Tax Arguments,” Section A.1 (“Contention: The filing of a tax return is voluntary”) (11/30/2006).

Tax protesters can claim that “no one has shown me the law” only because they have their eyes tightly shut.

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The requirement to file a return is based on the receipt of income in excess of the exemption amount, but the exemption amount is not specified by the statute and so there is no enforceable obligation to file a return.

More grasping at straws.

An income tax return is required when gross income exceeds a certain dollar amount. See I.R.C. § 6012(a)(1). However, the dollar amount is adjusted each year for inflation. Some tax protesters have therefore argued that, because the threshold dollar amount required for a return is not specified in the statute, no return is ever required. This argument completely ignores the fact that (a) the filing thresholds are published by the IRS in the instructions to Form 1040 and can be found quite easily by any taxpayer willing to look, (b) the filing thresholds are also published by the IRS in a Revenue Procedure in November or December before the April 15th when the returns are due, and (c) the mathematics of calculating the thresholds are relatively simple and can be verified by anyone willing to look up the statutory formula and the relevant consumer price index published by the Bureau of Labor Statistics. In fact, there is a professor of accounting who calculates the inflation-adjustments each year in September and publishes the relevant numbers (and formulas) for anyone who wishes to know.

The courts have therefore rejected claims that the filing thresholds are not adequately defined and that tax returns are not required.

Clayton’s argument that an exemption amount based on the CPI cannot trigger tax liability is unpersuasive. Clayton’s obligation to file a federal income tax return is derived from 26 U.S.C. § 6012. Section 6012, being a congressionally enacted federal statute, is not the rule of an “agency” as the term agency is defined by the APA. [Citation omitted.] The fact that § 6012 incorporates by reference the CPI, which is compiled and published by an agency of the DOL, does not cause the APA to be invoked. In this context, the CPI is simply an ascertainable numerical standard, and there is no requirement that such a standard incorporated into a statute be itself an enforceable rule of law.

Charles Thomas Clayton v. United States, 506 F.3d 405 (5th Cir. 2007), cert. den. No. 07-904 (4/14/2008).

“Every individual with gross income equaling or exceeding the “exemption amount” is required to file a federal income tax return. 26 U.S.C. § 6012(a)(1). The relevant exemption amount is defined by 26 U.S.C. § 151(d). 26 U.S.C. § 6012(a)(1)(D)(ii). Pond argues the lack of a specific amount designated by § 151(d) prevents penalizing him for non-compliance as it is unclear whether his income exceeds the necessary threshold for mandatory filing.

“Pond is mistaken: the Internal Revenue Code provides a specific amount. The exemption amount is generally defined as $2,000. 26 U.S.C. § 151(d). This general exemption amount is then modified by a cost-of-living adjustment as provided for by the Code’s reference to the Consumer Price Index at 26 U.S.C. § 1(f)(3)-(6). The Code’s provision of a specific number and statutory formula for adjusting that number defies Pond’s contention that the exemption amount is inadequately defined for him to be penalized for noncompliance. We reject his argument.”

Pond v. Commissioner, 211 Fed. Appx. 749, 2007 TNT 5-8 (10th Cir. 2007), aff’ng T.C. Memo. 2005-255.

“In his response to respondent’s motion for summary judgment, petitioner does not renew the argument, alluded to in his petition, that he is entitled to relief because the “exemption amount is unspecified in law” . We deem petitioner to have abandoned any such argument. In any event, insofar as we are able to discern from the petition, it would appear that in making this assignment of error petitioner sought to associate himself with the recurring tax- protester argument that sec. 151(d) inadequately defines the exemption amount to permit a taxpayer to be penalized for noncompliance. Such an argument is frivolous.”

Pate v. Commissioner, T.C. Memo. 2007-132 (5/29/2007).

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The income tax is voluntary.

This is a corruption of statements made by the IRS, the courts, and Congress to encourage taxpayer compliance with the tax laws, without the need for legal action against taxpayers.

A quotation frequently taken out of context by tax protesters is the following by the U.S. Supreme Court:

“Our tax system is based upon voluntary assessment and payment and not upon distraint.”

Flora v. United States, 362 U.S. 145, 175.

This quotation is out of context, because the court first noted that the government could collect the tax by exercising its power of distraint, “but we cannot believe that completing resort to this extraordinary procedure is either wise or in accord with congressional intent.” 362 U.S. at 175. In other words, Congress can collect taxes by force, but the court believed that Congress intended to give taxpayers an opportunity to comply before exercising that force.

This is better explained in Helvering v. Mitchell, (which was cited in the Flora decision), as follows:

“In assessing income taxes, the Government relies primarily upon the disclosure by the taxpayer of the relevant facts. This disclosure it requires him to make in his annual return. To ensure full and honest disclosure, to discourage fraudulent attempts to evade the tax, Congress imposes sanctions. Such sanctions may confessedly be either criminal or civil.”

Helvering v. Mitchell, 303 U.S. 391, 399 (1938).

When confronted by claims that income taxes are “voluntary,” courts readily explain that the payment of income tax is mandatory, not optional:

“Appellants’ claim that payment of federal income tax is voluntary clearly lacks substance.”

United States v. Gerads, 999 F.2d 1255 (8th Cir. 1993), cert. den. 510 U.S. 1193 (1994).

“The payment of income taxes is not optional ... and the average citizen knows that payment of income taxes is legally required.”

Schiff v. United States, 919 F.2d 830, 834 (2nd Cir. 1990).

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: ... (6) the income tax is voluntary... “

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“Any assertion that the payment of income taxes is voluntary is without merit. It is without question that the payment of income taxes is not voluntary. [citations omitted] The assertion that the filing of an income tax return is voluntary is, likewise, frivolous.”

United States v. Hartman, 915 F.Supp. 1227 (M.D.Fla. 1996).

“Based on his belief that the income tax system is based on voluntary compliance, Beresford wrote the IRS to explain that he had voluntarily chosen not to comply and would not be paying overdue income taxes for 1987, 1988, and 1989. The IRS issued a federal tax lien against him, which it satisfied by withholding $14,609.97 from the sale of Beresford’s house in October 1999. Beresford seeks to recover that sum plus interest and costs. He also seeks a permanent injunction ‘forbidding defendant from contacting him against his wishes and from directly or indirectly interfering in any other aspect of his life.’ Complaint at 11. ... Beresford’s primary contention, however, that the federal income tax system is based on voluntary compliance, has been held to be ‘completely lacking in legal merit and patently frivolous.’”

Steven M. Beresford v. IRS, et al., 86 AFTR2d 2000-5200, No. 00-293-KI (July 13, 2000).

“The federal income tax is not voluntary, and a person may not elect to opt out of the federal tax laws by a unilateral act of revocation and recission.”

United States v. John L. Sasscer, 86 AFTR2d 2000-5317, 2000 TNT 186-76, No. Y-97-3026 (D.C. Md. 8/25/2000), (footnote omitted).

“Upon review of May’s amended peition, we find no allegations of fact which could give rise to a valid claim; rather, the complaint merely contains conclusory assertions attacking the constitutionality of the Internal Revenue Code and its application to the taxpayer.[Footnote omitted.] Tax protest cases like this one raise no genuine controversy; the underlying legal issues have long been settled. See, e.g., Abrams, 82 T.C. at 406-07 (citing cases rejecting similar arguments). Because May’s petition raised no justiciable claims, the Tax Court properly dismissed the petition for failure to state a claim.”

May v. C.I.R., 752 F.2d 1301, 1302 (8th Cir. 1985), (among other things, May’s amended complaint alleged that “The filing of an ‘imcome’ [sic] tax return is ‘VOLUNTARY’ and penalties can not be instituted against a voluntary act since to do so would make the act ‘mandatory.’” 752 F.2d at 1304, note 3).

“His [Harris’s] claims that the payment of federal income taxes is voluntary, and that the IRS fraudulently induced him to pay his taxes by wit