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 withholding that fact, are clearly without merit.”

Harris v. Irene Kinahan, et al., 87 AFTR2d 2001-984, No. 00-5258 (3rd Cir. 18 May 2001).

See also, United States v. Raymond, 228 F.3d 804, 812 (7th Cir. 2000); Hyslep v. United States, 765 F.2d 1083, 1084 (11th Cir. 1985); Ginter v. Southern, 611 F.2d 1226, 1229 & n.2 (8th Cir. 1979), cert. den., 446 U.S. 967 (1980); Funk v. Commissioner, 687 F.2d 264, 265 (8th Cir. 1982); Lesoon v. Commissioner of Internal Revenue, 141 F.3d 1185, 1998 WL 166114 (10th Cir. 1998); Damron v. Yellow Freight System, Inc., 18 F. Supp. 2d 812, 819-20 (E.D. Tenn. 1998), aff’d, 188 F.3d 506 (6th Cir. 1999); Wilcox v. Commissioner of Internal Revenue, 848 F.2d 1007, 1008 (9th Cir. 1988).

The claims that “(1) Compliance with the internal revenue laws is voluntary or optional and not required by law, including arguments that: a. Filing a Federal tax or information return or paying tax is purely voluntary under the law,” or similar arguments described as frivolous in Rev. Rul. 2007-20, 2007-14 I.R.B. 863, 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 is only binding on people who have entered into contracts with the government, such as by applying for a Social Security number, driver’s license, or other governmental benefit or privilege.

Similar to the idea that the income tax is “voluntary” is the claim that a federal income tax return is a form of contract and is therefore voluntary, or invalid if entered into under duress. This claim is also uniformly rejected:

“The notion that the federal income tax is contractual or otherwise consensual in nature is not only utterly without foundation but, despite McLaughlin’s protestations to the contrary, has been repeatedly rejected by the courts.”

McLaughlin v. United States, 832 F2d 986 (7th Cir. 1987).

“Drefke argues that taxes are debts which can only be imposed voluntarily when individuals contract with the government for services and that those who choose to enter such contracts do so by signing 1040 and W-4 forms. By refusing to sign those forms, Drefke argues that he is ‘immune’ from the Internal Revenue Service’s jurisdiction as a ‘nontaxpayer.’

“This is an imaginative argument, but totally without arguable merit. 26 U.S.C. § 1 imposes upon ‘every’ individual a certain rate of income tax depending on their amount of taxable income. 26 U.S.C. § 6012 states that unmarried individuals having a gross income in excess of $4,300, and married individuals entitled to make joint returns having a gross income in excess of $5,400 ‘shall’ file tax returns for the taxable year. Considering Drefke’s gross income for 1979 and 1980, he was clearly required to file tax returns for those years.

“26 U.S.C. § 6151 states that when a tax return is required to be filed, the person so required ‘shall’ pay such taxes to the internal revenue officer with whom the return is filed at the fixed time and place. The sections of the Internal Revenue Code imposed a duty on Drefke to file tax returns and pay the appropriate rate of income tax, a duty which he chose to ignore.”

United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983), cert. den., sub nom., Jameson v. United States, 464 U.S. 942 (1983).

“Furthermore, Olson’s attempt to escape tax ... by claiming that he had obtained no privilege from a governmental agency illustrate the frivolous nature of his position. This court has ... 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).

See also, United States v. Keys, 1993 WL 101442, No. 923729 (6th Cir. 4/6/1993) (rejecting the argument that IRS may only gain jurisdiction over a “sovereign human being” by means of a signed contract or agreement to which the “human being” would be a party).

The claim that “Only persons who have contracted with the government by applying for a governmental privilege or benefit, such as holding a Social Security number, are subject to tax, and those who have contracted with the government may choose to revoke the contract at will,” 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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Form W-4 (i.e., the federal withholding certificate) is an agreement to be liable for the income tax.

As explained above, the federal income tax is not based on contract or consent, but is an obligation imposed by law. Similarly, Form W-4 is not an “agreement” but a document required by law to be filed with the employer (and not the IRS). And if an employee does not file a Form W-4 with the employer, the consequence is not freedom from tax but tax withholding at the highest possible rate. (There are also possible civil penalties.)

I.R.C. section 3402(f)(2)(A) provides as follows:

“On or before the date of the commencement of employment with an employer, the employee shall furnish the employer with a signed withholding exemption certificate relating to the number of withholding exemptions which he claims, which shall in no event exceed the number to which he is entitled.”

And Treas. Reg. section 31.3402(f)(5)-1(a) states that “Form W-4 is the form prescribed for the withholding exemption certificate required to be filed under section 3402(f)(2).”

The words “shall” in the statute, and “required” in the regulation, show that the furnishing of the form is not optional, and not the basis of an agreement.

The failure to provide a Form W-4 to an employer means that the employer must withhold income tax at the rate for a single employee with no exemptions (i.e., the highest possible rate).

“The employer is required to request a withholding exemption certificate from each employee, but if the employee fails to furnish such certificate, such employee shall be considered as a single person claiming no withholding exemptions.”

Treas. Reg. Section 31.3402(f)(2)-1(a).

Another other possible consequence is a civil penalty. Treas. Reg. Section 301.6109-1(b)(1) states:

“Every U.S. person who makes under this title a return, statement, or other document must furnish its own taxpayer identifying number as required by the forms and the accompanying instructions. A U.S. person whose number must be included on a document filed by another person must give the taxpayer identifying number so required to the other person on request. For penalties for failure to supply taxpayer identifying numbers, see sections 6721 through 6724.”

I.R.C. section 6723 is titled “Failure to Comply with Other Information Reporting Requirements,” and it provides as follows:

“In the case of a failure by any person to comply with a specified information reporting requirement on or before the time prescribed therefor, such person shall pay a penalty of $50 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $100,000.”

For this reason, the instructions to Form W-9 (but not Form W-4) states that, “Failure to furnish TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.”

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There is no requirement to apply for (or use) a Social Security number.

The Social Security Act may not require people to apply for Social Security numbers, but the Internal Revenue Code does.

The claim that there is no requirement to apply for, or have, a Social Security number seems to be based on various statements by the Social Security Administration that Social Security is not “mandatory” or that you are not required to provide a social security number except for purposes of Social Security benefits. But both federal law and the Social Security Administration recognize that both federal and state governments can require a Social Security number to comply with laws having nothing to do with the Social security systems.

The Social Security Act, 42 U.S.C. 405(c)(2(C)(i), includes the following:

“It is the policy of the United States that any State (or political subdivision thereof) may, in the administration of any tax, general public assistance, driver’s license, or motor vehicle registration law within its jurisdiction, utilize the social security account numbers issued by the Commissioner of Social Security for the purpose of establishing the identification of individuals affected by such law, and may require any individual who is or appears to be so affected to furnish to such State (or political subdivision thereof) or any agency thereof having administrative responsibility for the law involved, the social security account number (or numbers, if he has more than one such number) issued to him by the Commissioner of Social Security.”

The “Answers to Your Questions” section of the web pages of the Social Security Administration (www.ssa.gov) includes the following:

Specific laws require a person to provide his/her SSN for certain purposes. While we cannot give you a comprehensive list of all situations where an SSN might be required or requested, an SSN is required/requested by:

* Internal Revenue Service for tax returns and federal loans
* Employers for wage and tax reporting purposes
* States for the school lunch program
* Banks for monetary transactions
* Veterans Administration as a hospital admission number
* Department of Labor for workers’ compensation
* Department of Education for Student Loans
* States to administer any tax, general public assistance, motor vehicle or drivers license law within its jurisdiction
* States for child support enforcement
* States for commercial driver’s licenses
* States for Food Stamps
* States for Medicaid
* States for Unemployment Compensation
* States for Temporary Assistance to Needy Families
* U.S. Treasury for U.S. Savings Bonds

The Privacy Act regulates the use of SSNs by government agencies. When a Federal, State, or local government agency asks an individual to disclose his or her Social Security number, the Privacy Act requires the agency to inform the person of the following: the statutory or other authority for requesting the information; whether disclosure is mandatory or voluntary; what uses will be made of the information; and the consequences, if any, of failure to provide the information.

(Category: Social Security Numbers and Cards; Answer ID: 78; Last Updated: 12/23/2003 at 6:49 a.m.)

And a Social Security number is clearly required to comply with the filing requirements for the federal income tax.

Section 6109(a)(1) of the Internal Revenue Code states that, when required by regulations prescribed by the Secretary:

“Any person required under the authority of this title to make a return, statement, or other document shall include in such return, statement, or other document such identifying number as may be prescribed for securing proper identification of such person.”

Section 6109(d) states:

“The social security account number issued to an individual for purposes of section 205(c)(2)(A) of the Social Security Act shall, except as shall otherwise be specified under regulations of the Secretary, be used as the identifying number for such individual for purposes of this title.”

Treas. Reg. section 6109-1(a)(1)(ii)(A) states that

“(A) Except as otherwise provided in paragraphs (a)(1)(ii)(B) and (D) of this section, an individual required to furnish a taxpayer identifying number must use a social security number.”

And Treas. Reg. Section 301.6109-1(b)(1) states:

“Every U.S. person who makes under this title a return, statement, or other document must furnish its own taxpayer identifying number as required by the forms and the accompanying instructions. A U.S. person whose number must be included on a document filed by another person must give the taxpayer identifying number so required to the other person on request. For penalties for failure to supply taxpayer identifying numbers, see sections 6721 through 6724.”

I.R.C. section 6723 is titled “Failure to Comply with Other Information Reporting Requirements,” and it provides as follows:

“In the case of a failure by any person to comply with a specified information reporting requirement on or before the time prescribed therefor, such person shall pay a penalty of $50 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $100,000.”

I.R.C. section 6724(d)(3) defines “specified information reporting requirement” as including “(B) any requirement contained in the regulations prescribed under section 6109 that person (i) include his TIN on any return, statement, or other document (other than an information return or payee statement....”

It is therefore clear that a Social Security is required for Forms 1040, W-4, and other forms and documents required by the Internal Revenue Code and regulations and that the failure to provide a Social Security number can result in a civil penalty.

Although failing to provide a Social Security number on a tax return might not be a crime in itself, an intentional failure to provide a Social Security number could be construed to be evidence of a willful attempt to evade taxes, and so support a criminal conviction for tax evasion. Although no court decision has been found that addresses that exact issue, there are at least two court decisions upholding the convictions of persons who stopped using their Social Security numbers on tax returns. See United States v. Simkanin, 420 F.3d 397, 2005 TNT 167-10 (5th Cir. 2005), cert. den. ___ U.S. ___, No. 05-948 (5/1/2006) (defendant’s convictions for knowingly presenting false refund claims and willfully failing to file tax returns upheld; evidence included testimony “that he did not want his name to appear on documents requiring his social security number”); United States v. Neujahr, 173 F.3d 853, KTC 1999-135 (4th Cir. 1999) (evidence in support of convictions on four counts of tax evasion including the filing of Forms 1040-NR without Social Security numbers and the defendant’s own testimony that he had “stopped using his Social Security number altogether”).

A possible economic (not legal) consequence of failing to provide a Social Security number to an employer is termination of employment, because an employer has the right to fire an employee who fails to provide a Form W-4 with the employee’s Social Security number. And this is true even if the employee refuses to apply for or provide a Social Security number for religious reasons, as numerous courts have confirmed.

“It is uncontested that (1) Plaintiff sincerely believes that his religion prevents him from providing a social security number, (2) Plaintiff informed Defendant of his belief, and (3) Defendant refused to hire Plaintiff because he did not provide Defendant with a social security number. Nevertheless, Defendant argues, and the district court held, that Plaintiff cannot establish a prima facie case, because Defendant is required by law to obtain Plaintiff’s social security number. Specifically, the Immigration and Naturalization Service (INS), 8 C.F.R. § 274a.2(a) & (b)(1)(i), 8 C.F.R. § 274a.10(b)(2); Immigration Form I-9; and the Internal Revenue Code (IRC), 26 U.S.C. § 6109(a)(3) & (d), require employers to provide the social security numbers of their employees.

“Although they have disagreed on the rationale, courts agree that an employer is not liable under Title VII [of the Civil Rights Act of 1964] when accommodating an employee’s religious beliefs would require the employer to violate federal or state law.”

Sutton v. Providence St. Joseph Med. Ctr., 192 F.3d 826, 830-31 (9th Cir. 1999) (also rejecting claims under the Religious Freedom Restoration Act).

The 10th Circuit Court of Appeals has also upheld the dismissal of a suit alleging a violation of civil rights when the plaintiff was fired by her employer, State Stores, after refusing to provide a signed Form W-4 with her Social Security number.

“Moreover, State Stores is not only authorized, but also legally bound to withhold and pay federal income taxes to the Internal Revenue Service. See United States v. Lee, 455 U.S. 252, 261 (1982) (upholding 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); Payne v. Dixie Elec. Co., 330 S.E.2d 749, 750 (Ga. App. 1985) (“an employer is not only authorized but required to withhold federal income taxes from his employees’ pay”); Wilhelm v. United States, 84-1 USTC 1700, *3 (E.D. Tex. 1983) (same). Thus, State Stores’ compliance with its legal obligation to withhold taxes from its employees is not a violation of Edwards’ civil rights.”

Edwards v. Stringer, 2004 TNT 34-10, No. 03-2207 (10th Cir. 2/12/2004), (unpublished).

See also, Weber v. Leaseway Dedicated Logistics, Inc., 1999 WL 5111, at *1, No. 98-3172 (10th Cir.1999) (unpublished); Ron Seaworth v. Bob Pearson, et al., 87 AFTR2d Par. 2001-459, 2001 TNT 23-9, No. 99-3014MN (8th Cir. (employer not required to accommodate employee’s refusal to use Social Security number as “mark of the beast”; employer not required to apply for waiver of penalties under I.R.C. section 6724), E.E.O.C. v. Allendale Nursing Ctr., 996 F.Supp. 712, 717 (W.D. Mich. 1998) (requirement that employee obtain SSN is requirement imposed by law and is not employment requirement; provision for waiver of penalties under I.R.C. section 6724 does not exist to benefit employee who caused penalties to be imposed, and employer is not required to take steps to accommodate employee who caused penalty); Shelly L. Baltgalvis v. Newport News Shipbuilding Inc., et al., 87 AFTR2d Par. 2001-609, 2001 TNT 48-59, No. 4:00cv55 (U.S.D.C. E.D. Va. 2/22/2001).

A federal district court has also rejected a challenge to a tax of 31% that was withheld from the redemption of a U.S. savings bond when the bond owner refused to provide a Social Security number, despite the sincere religious (“mark of the Beast”) beliefs of the bond owner. Donald Louis Steckler v. United States, 81 AFTR2d Par. 98-495, 98 TNT 54-11, No. 96-1054 (U.S.D.C. E.D. La. 1/26/1998).

Tax Protester “Evidence”

In support of the idea that employees do not need to provide employers with a Social Security number, some tax protesters will refer to E.E.O.C. v. Information Systems Consulting, No. 3:92-cv-0169-T (U.S.D.C. N.D. Tex. 11/3/1992), but that case is very weak reed to lean on because:

As shown above, the actual court decisions on this issue have specifically rejected the claim that an employer cannot refuse to hire (or fire) an employee who fails to provide a Social Security number, even if the refusal is based on a sincere religious belief.

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The income tax applies only to government employees and corporate officers.

Like the argument about whether the United States includes the states of the United States, this argument depends on a misunderstanding of the word “includes.”

I.R.C. section 3401(c), which relates to withholding of income tax from wages, defines the word “employee” as follows:

“For purposes of this chapter, the term ‘employee’ includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term ‘employee’ also includes an officer of a corporation.”

I.R.C. section 3401(c).

Notice the word “includes”? As defined by I.R.C. section 7701(c), the use of “includes” does not exclude anything otherwise within the meaning of “employee,” so “employee” includes what you would normally think of as employees, as well as some things you might not ordinarily think of as employees, such as elected officials of state and local governments.

What have the courts said about the claim that only government employees are subject to income tax?

“Similarly, Latham’s instruction which indicated that under 26 U.S.C. § 3401(c) the category of ‘employee’ does not include privately employed wage earners is a preposterous reading of the statute. It is obvious that within the context of both statutes the word ‘includes’ is a term of enlargement not of limitation, and the reference to certain entities or categories is not intended to exclude all others.”

United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985).

“To the extent Sullivan argues that he received no ‘wages’ in 1983 because he was not an ‘employee’ within the meaning of 26 U.S.C. § 3401(c), that contention is meritless. Section 3401(c), which relates to income tax withholding, indicates that the definition of ‘employee’ includes government officers and employees, elected officials, and corporate officers. The statute does not purport to limit withholding to the persons listed therein.”

Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986).

“Petitioner’s assertion that he is not a person required to pay tax as he is not an officer, employee or elected official of the United States, a State, or any political subdivision thereof, or of a corporation, is wholly meritless.”

United States v. Rice, 659 F.2d 524, 528 (5th Cir. 1981).

“[P]laintiff’s claim that only public officials can be taxed is completely frivolous and without merit.”

McAffee v. United States, 84 AFTR2d ¶99-5536(N.D.Ga. 1999) (sanctions imposed in the amount of $500 for filing a frivolous claim).

“The term ‘person’ under the Internal Revenue Code is not, as the Turners would have it, limited to a person employed by the federal government.”

United States v. Turner, 86 AFTR2d ¸2000-5290, No. Civ. 99-00817 SOM/FIY (U.S.D.C. Hi. 3/10/2000).

“Plaintiff’s allegation is without legal merit as he attempts to limit ‘employees’ to employees of the federal government. However, the term employee refers to every individual who performs services at the direction or control of another. See 26 CFR section 31.3306(I)-1(b). Thus, even individuals that are not employees of the federal government are still construed as employees within the regulation if they fit within the definition pursuant to 26 CFR section 31.3401(c).”

Bernier v. IRS, KTC 1999-540, No. CV 98-0331-N-EJL (U.S.D.C. Idaho 1999)

“Plaintiff’s next argument is that he is not an ‘employee’ under 26 U.S.C. § 3401(c) because he is not a federal officer, employee, elected official, or corporate officer. Plaintiff mistakenly assumes that this definition of ‘employee’ excludes all other wage earners.”

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”).

“Plaintiff apparently bases his position on a strict interpretation of the statutory language of section 3401(c) which does not on its face include all persons who earn wages from an employer. ... The definition should not be read as exclusive, but rather as indicative of Congress’ intent that those persons so designated in section 3401(c) would be subject to the income tax withholding provision in the same manner as all other employees. The definition of “employee” , contrary to the interpretation urged by plaintiff, is more properly read to include all those persons with the ‘status of employee under the usual common law rules applicable in determining the employer-employee relationship.’”

Chamberlain v. Krysztof, 617 F.Supp. 491, KTC 1985-137 (N.D.N.Y. 1985) (footnotes omitted).

“The core of the dispute before the court is Ferguson’s assertion that she was not an “employee” as defined by §3401(c) of the Internal Revenue Code, and therefore did not earn any ‘wages.’ [footnote omitted] As such, she argues that her Form 1040 and Form 4862 accurately reported her wages as zero. As noted by the government, Ferguson’s interpretation of §3401(c) has been considered and rejected numerous times by many courts. This Court would agree with the overwhelming precedent on this issue, Ferguson’s argument that she is not an employee as defined by §3401(c) is frivolous.”

United States v. Ferguson, 2007-1 U.S. Tax Cas. (CCH) ¶50,461 (D. Nev. 2007).

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....”

See also, Grimes v. Commissioner, 806 F.2d 1451, 1453 (9th Cir. 1986).

The conclusion that only “federally-connected” income is subject to income tax is a central premise of Cracking the Code—The Fascinating Truth about Taxation in America by Peter E. Hendrickson. Unfortunately, Hendrickson himself lost when the government sued him and his wife to recover refunds he had claimed using the methods described in his book, the court stating:

“Defendants base their contention on theories contained in a book entitled Cracking the Code, which was written by Defendant Peter Hendrickson. On page 76 of Cracking the Code (“CtC”), Defendant Peter Hendrickson, states ‘So, actually, withholding only applies to the pay of federal government workers, exactly as it always has (plus ‘State’ government workers, since 1939, and those of the District of Columbia since 1921).’ ... Defendants’ contention that withholding applies only to government workers is frivolous and false. [Citations omitted] Defendant Peter Hendrickson was an employee of Personnel Management, Inc. in 2002 and 2003 within the meaning of IRC § 3401(c).”

United States v. Peter Eric Hendrickson, 2007 WL 2385071, at *3, No. 06-11753, Docket #34, pages 5-6 (U.S.D.C. E.D. Mich. 5/2/2007), affirmed, No. 07-1510 (6th Cir. 6/11/2008) (sanctions of $4,000 imposed for frivolous appeal), cert. den., No. 08-1399 (6/15/2009), reh. Den. (8/17/2009).

Hendrickson was later indicted and convicted of filing false documents with the Internal Revenue Service, and in denying his post-trial motion for a new trial (or acquittal) and rejecting his challenges to the instructions given to the jury on the meanings of “wages” and “employee,” the court stated that Hendrickson “was not entitled to jury instructions reflecting his own views as to the purported meanings of the terms ‘wages’ and ‘employee’ under the Internal Revenue Code” because “the courts have uniformly held that the ordinary remuneration received by privately employed workers qualifies as taxable ‘wages’ under the Internal Revenue Code.” The court also pointed out that the judgment against Hendrickson in the erroneous refund suit was an “explicit rejection” of his position. United States v. Peter Hendrickson, 2010 TNT 81-15, n. 5, No. 2:08-cr-20585-DML-DAS (U.S.D.C. E.D. Mich. 4/26/2010).

Another problem with tax protesters’ interpretation of section 3401(c) is that, even if it were true, it would do them no good. As pointed out above, the definition of “employee” in section 3401(c) specifically states that it is “for purposes of this chapter.” Section 3401 is in Chapter 24 of the Internal Revenue Code, which is titled “Withholding of Tax on Wages at Source.” So proving that you are not an “employee” within the meaning of section 3401 would only mean that your compensation is not subject to withholding. Your compensation would still be included in gross income as defined by section 61, and in taxable income as defined by section 63, because those sections are in Chapter 1 of the Internal Revenue Code, not Chapter 24. (Sections 61 and 63 also do not use the word “employee.”)

The claim that only federal employees receive “wages” is specifically addressed (and refuted) in Rev. Rul. 2006-18, 2006-15 IRB 743, and the IRS also warns that taxpayers filing returns based on that claim can be liable for various civil and criminal penalties.

Also, the claim that “[o]nly certain types of taxpayers are subject to income and employment taxes, such as employees of the Federal government, ..., or similar arguments described as frivolous in Rev. Rul. 2006-18, 2006-15 IRB 743” 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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Only the salaries of government employees are subject to levy.

Like the claim that only federal employees are subject to tax, the argument that only the salaries of government employees are subject to levy is based on the belief that any reference to one kind of taxpayer somehow excludes other kinds of taxpayers. The statute in question, I.R.C. section 6331(a), does not use the word “includes,” but the general idea is the same, the statute reading as follows:

“If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. Levy may be made upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official.”

The first sentence of section 6331(a) is all-inclusive, referring to “all persons” liable to pay any tax and levy on “all property and rightst to property.” The second sentence does not explicitly or even implicitly limit the scope of the first sentence, but states how a levy is to be made on the salary or wages of a federal officer or employee.

Limiting section section 6331(a) to the salaries and wages of federal employees would also be inconsistent with the broad reach of other subsections of section 6331, and render them meaningless. For example, section 6331(b) authorizes the IRS to “seize and sell such property or rights to property (whether real or personal, tangible or intangible),” but the accrued salaries or wages of federal employees are not “real” or “tangible.”

But if the first sentence authorizes a levy on all wages, both public and private, why is the second sentence there?

The Supreme Court explained the historical reason for this specific provision in an action challenging a levy on the salary of an employee of a state government:

“Nor is there merit in petitioner’s contention that Congress, by specifically providing in 6331 for levy upon the accrued salaries of federal employees, but not mentioning state employees, evinced an intention to exclude the latter from levy. The explanation of that action by Congress appears quite clearly to be that this Court had held in Smith v. Jackson, 246 U.S. 388, that a federal disbursing officer might not, in the absence of express congressional authorization, set off an indebtedness of a federal employee to the Government against the employee’s salary, and, pursuant to that opinion, the Comptroller General ruled that an ‘administrative official served with [notices of levy] would be without authority to withhold any portion of the current salary of such employee in satisfaction of the notices of levy and distraint.’ 26 Comp. Gen. 907, 912 (1947). It is evident that 6331 was enacted to overcome that difficulty and to subject the salaries of federal employees to the same collection procedures as are available against all other taxpayers, including employees of a State.”

Sims v. United States, 359 U.S. 108, 112-113 (1959), (emphasis added).

In other words, there had been doubt about whether the power to levy extended to federal employees in the absence of express Congressional action, and Congress acted to eliminate that doubt. But there had never been any doubt about the power to levy on other salaries, so it was not necessary for Congress to mention them.

Needless to say, every other federal court has followed the Sims decision and held that the IRS can levy on the wages and salaries of any employee, and not just a government official or employee.

“Plaintiffs also assert that the levy was invalid under 26 U.S.C. §6331(a) because Mr. James was not an officer, employee, or elected official of the United States or the District of Columbia, or of any agency or instrumentality of the United States or the District of Columbia. Plaintiffs’ argument is frivolous. Section 6331(a) empowers the IRS to levy the property of all taxpayers. See Sims v. United States, 359 U.S. 108, 112-13 (1959) (all taxpayers are subject to levy for deficiencies under §6331 ; §6331 specifically names government employees and agents in response to earlier Supreme Court case which held that “federal disbursing officer might not, in the absence of express congressional authorization, set off an indebtedness of a federal employee to the Government against the employee’s salary” ); see also Maisano v. Welcher, 940 F.2d 499, 502 (9th Cir. 1991) (emphasizing broad scope of §6331 ), cert. denied, 112 S. Ct. 1957 (1992).”

James v. United States, 970 F.2d 750, 755, note 9, 92-2 U.S. Tax Cas. (CCH) ¶50,389 (10th Cir. 1992).

“Plaintiff apparently thinks that only federal officers and employees are subject to the levy and distraint provisions of §6331. He is wrong. See Sims v. United States, 359 U. S. 108, 112-113 (1959).”

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”).

“First, Craig contends that 26 U.S.C. §6331(a) authorizes the IRS to levy only on the salary or wages of federal employees, and the notices of intent to levy on his property were invalid because he is not a federal employee. [Quotation from section 6331(a) omitted.] Craig argues that the meaning of this section lies in the second sentence, authorizing the Secretary to levy on the wages or salary of federal employees. This interpretation is wholly frivolous. It ignores the first sentence, which authorizes the Secretary to levy on the property of “any person liable to pay any tax [who] neglects or refuses to pay the same.” Section 6331(a) , taken in its entirety, plainly authorizes the IRS to levy on the property of any delinquent taxpayer. By mentioning federal employees in this statute, Congress did not intend to exclude other taxpayers, but rather to make clear that federal salaries are not exempt from levies. See Sims v. United States, 359 U.S. 108, 112-13 (1959); see also Arford v. United States, 934 F.2d 229, 233-34 (9th Cir. 1991) (section 6331 applies to employees of private companies as [well as] to government employees).”

Craig v. Lowe, 96-2 U.S. Tax Cas. (CCH) ¶50,416, KTC 1996-286 (N.D. Calif. 1996).

“Plaintiff also argues that because §6331 specifically states a notice of levy is sufficient to ‘make’ a levy on the salary of a federal or District of Columbia employee, serving a notice of levy is not sufficient to ‘make’ a levy on the salary of a private sector employee. That same argument was clearly rejected in Sims v. United States, 359 U.S. 108, 112-13 (1959), which explains that federal and District of Columbia employees were specifically mentioned to overcome authority treating them differently and to make clear they were to be treated just like every other employee.”

Pawlowske v. Chrysler Corp., 623 F. Supp. 569, 86-1 USTC ¶9392 (N.D. Ill. 1985).

“The Schroeders claim that Section 6331 only applies to employees of the federal government .... Their interpretation is incorrect for two reasons. First, as the Supreme Court made clear in Sims v. United States, 359 U.S. 108, 113 (1959), the language in Section 6331 referring to ‘any officer, employee, or elected official, of the United States . . .’ was included in order to ‘subject the salaries of federal employees to the same collection procedures as are available against ALL OTHER TAXPAYERS. . . .’ Id. (emphasis added). By its terms Section 6331 otherwise applies to ‘any person liable to pay any tax. . . .’ 26 U.S.C. section 6331; United States v. National Bank of Commerce, 472 U.S. 713, 714-15 (1985). Therefore, the Schroeders’ property is subject to levy.”

Albers v. Internal Revenue Service, 77 A.F.T.R.2d ¶96-1234, KTC 1996-40 (D.Neb. 1996).

See also, Arford v. United States, 934 F.2d 229, 233-34 (9th Cir. 1991) (section 6331 applies to employees of private companies as [well as] to government employees); Craig v. United States, 30 F.3d 139 (Table), text at 1994 WL 408250 (9th Cir. 1994); Creamer v. Commissioner, T.C. Memo. 2007-266; Connolly v. Commissioner, T.C. Memo. 2008-95.

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The income tax applies only to corporations.

This claim appears to be based on a strange chain of “logic.”

As noted above, Congress enacted taxes on the incomes of corporations from manufacturing and other industries after the Supreme Court held in Pollock that an income tax on incomes from property was unconstitutional unless apportioned, and the Supreme Court held that those corporate excise taxes were constitutional. See, for example, Flint v. Stone Tracy Co., 220 U.S. 107 (1911).

The cases that arose under those corporate tax cases necessarily developed a definition of “income” and, after the adoption of the 16th Amendment and the enactment of general income taxes on both individuals and corporations, courts continued to refer to those definitions of “income” under the corporate excise tax acts. This leads tax protesters to claim that “income” means only “corporate income,” which is ridiculous.

“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).

“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.”

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

“Plaintiff argues ‘income’ should be interpreted as limited to corporate activities, and not include wages. He relies on a series of Supreme Court cases rendered shortly after ratification of the Sixteenth Amendment, and which define the scope of corporate income. NONE of those cases, however, stands for the proposition that only corporate income is taxable. To the contrary, like Richards, supra, many of these cases state: “income may be defined as gain derived from capital, FROM LABOR, OR FROM BOTH COMBINED”. See, e.g., Bowers v. Kerbaugh-Empire Co., 271 U.S. 170, 174 (1926); Merchant’s Loan & Trust Co. v. Smietanka, 255 U.S. 509, 518 (1921); Eisner v. Macomber, 252 U.S. 189, 207 (1919); Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185 (1918); Stratton’s Independence. Ltd. v. Howbert, 231 U.S. 399, 415 (1913) (emphasis added). In particular, in Southern Pacific Co. v,. Lowe, 247 U.S. 330, 333-34 (1918), the Supreme Court quoted the income statute at the time as imposing a tax on “every person residing in the United States . . . upon the entire net income arising and accruing from all sources”. Thus, the plain language of the authorities upon which Plaintiff relies belies his 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). In affirming, the 6th Circuit stated that, “Tornichio’s legal assertions are patently spurious, as it cannot be seriously argued that an individual’s taxable income is based solely on income derived from corporate activities,” and imposed additional sanctions for filing a frivolous appeal.

“[T]he frivolous argument that wages are not income ‘has been rejected so frequently that the very raising of it justifies the imposition of sanctions.’ Connor v. Commissioner, 770 F.2d 17, 20 (2d Cir. 1985); Bey v. New York, 164 F.3d 617, 617 (2d Cir. 1998). Section 61(a) of the Internal Revenue Code clearly defines gross income as ‘all income from whatever source derived,’ which includes wages, salaries, and compensation for services. 26 U.S.C. section 61(a); 26 C.F.R. section 1,61-2(a). The plaintiffs erroneously rely on cases that have defined the scope of corporate income to argue that non-corporate income is not taxable. ‘To the contrary, . . . many of these cases state: “income may be defined as gain derived from capital, from labor, or from both combined.”’ Tornichio [v. United States, 81 AFTR2d 98-582, KTC 1998-71 (N.D.Ohio 1998), 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)], 1998 WL 381304, at *3 (citations omitted). The plaintiffs’ claim that they are owed a refund because they had no tax liability for the years 1993 through 1996 is therefore foreclosed by well-established law.”

Gavigan v. United States, 87 AFTR2d 2001-480, No. 3:99CV697 (DJS) (D.Conn. 11/30/2000), (suit for refund of frivolous return penalties dismissed).

“One of the bases for Plaintiff’s position is that he had no taxable income since “income” can only be a derivative of corporate activity. This position, however, is simply untenable and is directly contrary to the law.”

Myrick v. United States of America, 217 F Supp 2d 979, 2002-2 US TaxCas 650,487, KTC 2002-457, aff’d Docket: 02-16428, KTC 2003-327 (9th Cir. 2003).

See also, Rennie v. Internal Revenue Service, 216 F. Supp. 2d 1078, 1083 (E.D. Cal. 2002), (plaintiff’s “zero” return was frivolous when based on his argument that his wages were not derived from corporate activity); Olson v. United States, 760 F.2d 1003 (9th Cir. 1985); Gattuso v. Pecorella, 733 F.2d 709 (9th Cir. 1984); Jones v. Commissioner, 338 F.3d 463, 466 (5th Cir. 2003).

The claim that “[o]nly certain types of taxpayers are subject to income and employment taxes, such as ... corporations, ..., or similar arguments described as frivolous in Rev. Rul. 2006-18, 2006-15 IRB 743” 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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Income taxes can be avoiding by forming a “corporation sole” or other tax-exempt charitable organization.

This is one of several places where tax denier fantasies move out of the realm of delusions and into fraud.

A “corporation sole” is a special type of corporation recognized under the laws of some states for the use of religious organizations and religious leaders holding property for religious purposes. Regardless of what state law might provide, a charitable organization is not exempt from federal income tax under I.R.C. section 501(c)(3) unless it is organized and operated solely for religious or other charitable purposes and not part of its earnings “inures to the benefit of any private shareholder or individual. The idea that a special type of corporation intended for religious use can be used for private purposes and somehow eliminate federal income tax is patently ridiculous.

There is no serious litigation on this issue, but courts have been compelled to enjoin persons from promoting the use of corporations sole for tax avoidance purposes. See, for example, United States v. Eddie Ray Kahn et al., No. 5:03-cv-436-Oc-10GRJ (M.D.Fl. 12/29/2003); United States v. Rita I. Johnson, 2007 TNT 40-20, No. 3:05-cv-05798 (W.D.Wash. 2/23/2007); United States v. Nancy E. Lloyd, 2005 TNT 239-15, No. 1:04CV00274 (M.D.N.C. 12/6/2005).

See also, United States v. Estate Preservation Services, 202 F.3d 1093, 85 AFTR2d Par. 2000-378, 2000 TNT 19-7 (9th Cir. 2000) (affirming injunction against promoter of “donor-directed foundations” intended to provide retirement income and other private benefits); United States v. Heineman, 801 F.2d 86 (2d Cir. 1986) (upholding conviction for promoting use of sham church entities to avoid taxes); United States v. Adu, 770 F.2d 1511 (9th Cir. 1985) (upholding conviction for aiding and assisting in the preparation and presentation of false income tax returns claiming charitable contribution deductions to sham churches); Svedahl v. Commissioner, 89 T.C. 245 (1987) (sanctioning taxpayer for using contributions to sham church entities to shield income and pay personal expenses).

The IRS has issued a public ruling that a “corporation sole” cannot be used as a means to exclude income from taxation, and has warned taxpayers of the civil and criminal penalties they might face for taking or promoting that position, in Rev. Rul. 2004-27, 2004-12 I.R.B. 625. The IRS has also given notice that the use of a “corporation sole” is 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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I am not a “person” within the meaning of the Internal Revenue Code.

This argument is a variation of the “income tax only applies to corporations” argument, but is usually presented with different “support.”

Section 7701(a)(1) of the Internal Revenue Code states that:

“The term ‘person’ shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.”

The argument that is usually made is that trusts, estates, partnerships, associations, companies, and corporations are all “artificial entities” created by law (which isn’t really true), and the presumption is that a list of things is a list of like things, so an “individual” for purposes of I.R.C. section 7701(a) must be an artificial entity as well, and not a human being.

But the Internal Revenue Code refers to “married persons” in section 1 and other places, and only human beings marry.

And the Internal Revenue Code (and other statutes) consistently uses the word “individual” to mean a natural person and not a corporation.

Finally, 1 U.S.C. § 8(a) states that:

“In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the words “person”, “human being”, “child”, and “individual” shall include every infant member of the species homo sapiens who is born alive at any stage of development.”

So this “argument” is nothing but grasping at straws, and is universally rejected but the courts.

“The [Internal Revenue] Code defines the term ‘person’ to include any ‘individual.’ 26 U.S.C. section 7701(a)(1). The term ‘taxpayer,’ in turn, refers to ‘any person subject to any internal revenue tax.’ 26 U.S.C. section 7701(a)(14). ... Sasscer is an individual and, thus, qualifies as a ‘person’ under the tax laws.”

United States v. John L. Sasscer, 86 AFTR2d 2000-5317, 2000 TNT 186-76, No. Y-97-3026 (D.C. Md. 8/25/2000).

“[P]etitioners’ notion that common speech restricts the term ‘person’ to artificial persons is just wrong. ‘Person’ is the generic term; it usually refers to human beings; when it is extended to include other entities, such as corporations, they are included in the definition of person and, to provide clarity and contrast, the term ‘individual’ is applied to human beings. Petitioners are ‘individuals’ within the meaning of the Internal Revenue Code. The fact that the term ‘individual’ is not defined in the Internal Revenue Code is also of no moment. As previously stated, words in the Internal Revenue Code have their commonly accepted meanings as used in common speech.”

Liddane v. Commissioner, T.C. Memo 1998-259.

A recent variation on the “not a person” argument is based on IRC section 7343, which states that:

“The word ‘person’ as used in this chapter includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.”

The “this chapter” is Chapter 75, titled “Crimes, Other Offenses, and Forfeitures,” and the argument is that an individual who fails to file a tax return (or commits any other crime defined by Chapter 75) cannot be prosecuted unless the individual is an officer of a corporation. However, the clear purpose of section 7343 is to make sure that officers of corporations (or partnerships) who are responsible for complying with the tax laws for the corporation cannot escape the penalties for failing to comply with the law merely because it is the obligation of the corporation and not the officers individual tax obligation. Section 7343 merely clarifies that a corporate officer can be penalized for failing to satisfy the tax obligations of the corporation.

The argument that section 7343 limits the application of the Internal Revenue Code to corporate officers and other specifically described in that section was expressly rejected United States v. Peter Hendrickson, 664 F.Supp.2d 793, 2009 TNT 195-16 (E.D. Mich. 10/7/2009). In a later ruling in the same case, the court confirmed that the term “person” used in the penal provisions of the Internal Revenue Code “encompasses ordinary individuals,” adding that “the jury could reasonably have inferred from the testimony at trial that this statutory element [that the Defendant was a ‘person’] was satisfied, where Defendant himself took the stand and appeared to be an ordinary individual.” United States v. Peter Hendrickson, 2010 TNT 81-15, No. 2:08-cr-20585-DML-DAS (U.S.D.C. E.D. Mich. 4/26/2010).

Other courts have rejected the section 7343 “person” argument as well. In United States v. Rice, 659 F.2d 524, 528 (5th Cir. 1981), the defendant challenged his conviction for willfully failing to file an income tax return, arguing, among other things, that he was not a “person” who was obligated to file an income tax return under the federal tax laws. The Fifth Circuit rejected this argument as a “nigh frivolous non-sequitur,” explaining that section 7343 “obviously” was “not intended to exclude individual[s] or to limit the ordinary meaning of the term `person’ so as to exclude individuals or `natural persons,’ in counsel’s phrase, from their responsibility to comply with the tax laws.” (Emphasis in original.) Similarly, in United States v. Latham, 754 F.2d 747, 749-750 (7th Cir. 1985), the Seventh Circuit affirmed that the district court did not err when it refused a jury instruction implying that section 7343 did not include “natural persons” and described the proposed instruction as “inane,” observing that the word “includes” as used in section 7343 (and section 3401(c)) “is a term of enlargement not of limitation, and the reference to certain entities or categories is not intended to exclude all others.”

See also, United States v. Maggi, No. 98-5570, 1999 WL 96651, at *2 (6th Cir. Feb. 5, 1999); United States v. Napier, No. 90-1297, 1991 WL 22022, at *1 (6th Cir. Feb. 22, 1991); United States v. Boling, No. 87-5051, 1988 WL 3477, at *2 (6th Cir. Jan. 19, 1988).

The claim that “[a] taxpayer is not a “person” within the meaning of section 7701(a)(14) or other provisions of the Internal Revenue Code,” or similar arguments described as frivolous in 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.

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The tax laws only apply to “taxpayers” and you are not required to file returns or pay taxes if you are not a “taxpayer.”

At best, this argument is circular or tautological. At worst, it represents nothing more than an absurd manipulation of words.

I.R.C. section 7701(a)(14) defines “taxpayer” as “any person subject to any internal revenue tax.” Tax protesters think that, if they are not a “taxpayer,” they are not subject to the federal income tax. But that’s backwards, because the important question is whether or not you are subject to tax. Unable to find any authority that they are exempt or immune from tax, the protesters resort to word games to try to escape their tax liabilities.

And so the courts haven’t had much patience with this “argument.”

“Plaintiff claims on appeal that he is not a taxpayer subject to IRS jurisdiction.... Plaintiff’s claim that he is not a taxpayer is unsupported and frivolous.”

Beerbower v. Commissioner of Internal Revenue, 787 F.2d 588 (6th Cir. 1986). See also, Martin v. Commissioner of Internal Revenue, 756 F.2d 38 (6th Cir. 1985).

“Drefke argues that taxes are debts which can only be imposed voluntarily when individuals contract with the government for services and that those who choose to enter such contracts do so by signing 1040 and W-4 forms. By refusing to sign those forms, Drefke argues that he is ‘immune’ from the Internal Revenue Service’s jurisdiction as a ‘nontaxpayer.’

“This is an imaginative argument, but totally without arguable merit.”

United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983), cert. den., sub nom., Jameson v. United States, 464 U.S. 942 (1983).

“The crux of Sasscer’s argument is that this Court lacks jurisdiction because he does not qualify as a ‘taxpayer’ within the meaning of the Internal Revenue Code. The Code defines the term ‘person’ to include any ‘individual.’ 26 U.S.C. section 7701(a)(1). The term ‘taxpayer,’ in turn, refers to ‘any person subject to any internal revenue tax.’ 26 U.S.C. section 7701(a)(14). The Code imposes a tax on all income, [citation omitted], and any person required to pay any tax must file a return, see 26 U.S.C. Sections 6001, 6011, 7203. ... Sasscer is an individual and, thus, qualifies as a ‘person’ under the tax laws. Because the record indicates that Sasscer earned taxable income during the period from 1976-1989, he meets the definition of a ‘taxpayer’ subject to the requirements of the Internal Revenue Code. The federal courts have consistently rejected such ‘non-taxpayer’ status claims as meritless, [citations omitted], and this Court will do the same.”

United States v. John L. Sasscer, 86 AFTR2d 2000-5317, 2000 TNT 186-76, No. Y-97-3026 (D.C. Md. 8/25/2000).

“Again, the notion that the tax on the income from employment or labor of a human being is an unconstitutional tax on his existence, and that only artificial entities such as corporations, formed and continued by State action, can be subjected to income tax, is, in this day and age, even when alternative approaches to raising revenue are receiving legislative consideration, too quaint to require extended discussion. In this connection, petitioners’ notion that common speech restricts the term ‘person’ to artificial persons is just wrong. ‘Person’ is the generic term; it usually refers to human beings; when it is extended to include other entities, such as corporations, they are included in the definition of person and, to provide clarity and contrast, the term ‘individual’ is applied to human beings. Petitioners are ‘individuals’ within the meaning of the Internal Revenue Code. The fact that the term ‘individual’ is not defined in the Internal Revenue Code is also of no moment. As previously stated, words in the Internal Revenue Code have their commonly accepted meanings as used in common speech.”

Liddane v. Commissioner, T.C. Memo 1998-259.

See also, United States v. Gardell, 23 F.3d 395, 1994 WL 17097 *1 (1st Cir. 1994) (unpublished opinion); United States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991), cert. den. 112 S.Ct. 940 (1992); United States v. Karlin, 785 F.2d 90, 91 (3d Cir. 1986); United States v. Studley, 783 F.2d 934, 937 (9th Cir. 1985).

Tax Protester “Evidence”

Tax protesters who try to argue that they are “nontaxpayers” usually like to cite (and quote from) two different decisions:

“The revenue laws are a code or system in regulation of tax assessment and collection. They relate to taxpayers, and not to nontaxpayers. The latter are without their scope. No procedure is prescribed for nontaxpayers, and no attempt is made to annul any of their rights and remedies in due course of law. With them Congress does not assume to deal, and they are neither of the subject nor of the object of the revenue laws.”

Long v. Rasmussen, 281 F. 236 (1922).

In Long v. Rasmussen, Rasmussen was a collector of taxes for the Internal Revenue Service and Long sued him to recover property that Rasmussen had seized to satisfy the taxes owed by a man named Wise. There was no question but that Long owed no taxes, and the only issue in the case was the proper procedure for Long to use to recover the property that was wrongfully seized by Rasmussen. Rasmussen attempted to defend himself with the claim that the suit was to prevent the collection of a tax, and so was barred by the anti-injunction act, but the court recognized that the suit was for the recovery of property wrongfully seized, and not for the recovery of any tax, because Long was not even alleged to owe any tax and so was outside the scope of the tax laws. The reasoning of the case obviously has no application to those who are alleged to owe tax.

Economy Plumbing & Heating v. U.S., 470 F.2d 585, 200 Ct.Cl. 31 (1972), is similar in nature. The plaintiff, Economy Plumbing, alleged that the government had wrongfully seized money that belonged to it in order to pay taxes owed by another party. Unfortunately, Economy Plumbing made the mistake that Long had avoided, because Economy Plumbing tried to file a claim for refund of taxes. The Court of Claims pointed out that Economy Plumbing could not claim a refund of taxes because it had not paid any tax, the court quoting from the Long v. Rasmussen opinion for the proposition that tax remedies do not apply to claims by third parties for the recovery of property wrongfully seized by the government for taxes owned by someone else.

The problem with each of those decisions is that they have nothing to do with the question of who is required to file a return or who is required to pay federal income tax. In each case, the issue before the court was whether the procedures for tax claims should apply to a proceeding brought by someone that everyone agreed did not owe any tax.

There is also a third opinion that is sometimes quoted by tax protesters:

“A reasonable construction of the taxing statutes does not include vesting any tax official with absolute power of assessment against individuals not specified in the states as a person liable for the tax without an opportunity for judicial review of this status before the appellation of ‘taxpayer’ is bestowed upon them and their property is seized...”

Botta v. Scanlon, 288 F.2d. 504, 508 (1961).

The issue in Botta was whether a court could prevent the IRS from seizing the personal property of corporate officers for taxes owed by the corporation. Corporate officers can be liable for taxes owed by the corporation under certain circumstances and the Internal Revenue Code, in a section often known as the “Anti-Injunction Act” (I.R.C. section 7421), prohibits courts from enjoining or otherwise interfering with the collection of taxes by the IRS. However, the Botta court recognized that the anti-injunction act might not apply when the IRS is attempting to collect taxes from someone other than the taxpayer. The Botta decision is therefore similar to Long v. Rasmussen, discussed above, because both cases deal with the rights of persons other than the person against whom the tax has been imposed. As one court has explained:

“Plaintiff relies on Botta v. Scanlon, 298 F.2d 504 (1961), in which the Second Circuit distinguished taxpayers from nontaxpayers. The court in Botta adopted another court’s statement that “the Revenue laws relate only to taxpayers.” Id. at 508 (quoting Adler v. Nicholas, 166 F.2d 674, 678 (10th Cir. 1948). Botta goes on, however, to explain that this distinction is relevant only when the IRS ‘seeks to levy on property belonging to [a nontaxpayer] for the collection of ANOTHER’s (i. e., a taxpayer’s) tax.’ Id. (emphasis added). The court in Botta found that the plaintiff, a corporate officer, was under no duty to pay taxes owed by the bankrupt corporation, and therefore qualified as a nontaxpayer with respect to the corporate taxes.”

Charles W. Leddy v. Philip Sullivan, 74 AFTR2d 94-5433, note 1, 94 TNT 190-10, No. 1:94-cv-0291 (U.S.D.C. S.D. Ala. 9/29/1994).

See also, William A. Shipley v. IRS, 85 AFTR2d 2000-670, 2000 TNT 97-14, No. 99-2331 (U.S.D.C. D.Kan. 3/30/2000) (“The court in Botta certainly did not recognize an exception to Section 7421 for taxpayers who challenge the general IRS authority to tax the income of individuals.”).

The quotations from Long v. Rasmussen, Economy Plumbing, and Botta are therefore more examples of quotations taken out of context and twisted to mean something that the court never intended.

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I cannot be prosecuted for failing to file a tax return if I have a good faith belief that the tax laws do not apply to me.

This is valid in theory, but it almost never works in practice.

The general rule is that ignorance of the law is no excuse, but ignorance is an excuse in prosecutions for tax crimes. The statutes defining the criminal penalties for violating the tax laws all use the word “willful” or “willfully” to describe the crime. So, for example, I.R.C. section 7203, which is titled “Willful failure to file return, supply information, or pay tax,” applies penalties to anyone who “willfully” fails to file a required return or pay a required tax. In United States v. Murdock, 290 U.S. 389 (1933), the Supreme Court held that the word “willfully” in tax statutes requires proof of a “bad purpose,” stating that:

“Congress did not intend that a person, by reason of a bona fide misunderstanding as to his liability for the tax, as to his duty to make a return, or as to the adequacy of the records he maintained, should become a criminal by his mere failure to measure up to the prescribed standard of conduct.”

United States v. Murdock, 290 U.S. 389, 396 (1933).

In later decisions, the Supreme Court defined “willfulness” as “a voluntary, intentional violation of a known legal duty.” United States v. Bishop, 412 U.S. 346, 360 (1973); United States v. Pomponio, 429 U.S. 10, 12 (1976).

So the tax filing strategy once suggested by comedian Steve Martin (”I FORGOT!“) can actually work.

In the most recent (and possibly most famous) Supreme Court decision on the meaning of “willfulness,” the defendant was a tax protester, John Cheek, who believed that wages were not “income” subject to the income tax and that a tax on wages would be unconstitutional. The judge instructed the jury to disregard Cheek’s explanations for why he did not file tax returns because his beliefs were not “objectively reasonable” and the Supreme Court reversed, holding that the jury must be allowed to consider the beliefs of the defendant relevant to “willfulness” regardless of whether the beliefs are “reasonable.” United States v. Cheek, 498 U.S. 192 (1991).

So it looks like tax protesters are free to argue their gibberish to a jury and, if they can confuse the jury enough, they can escape any criminal penalties. Not quite, because there are a couple of “gotchas” within the Cheek decision itself.

First, the court only held that the court could not instruct the jury that a belief was “unreasonable,” but the jury itself could still choose to disregard a belief as “unreasonable.” As the court explained:

“Of course, the more unreasonable the asserted beliefs or misunderstandings are, the more likely the jury will consider them to be nothing more than simple disagreement with known legal duties imposed by the tax laws, and will find that the Government has carried its burden of proving knowledge.”

United States v. Cheek, 498 U.S. 192, 203-204 (1991).

So the prosecutor can still point out to the jury that the “good faith beliefs” asserted by the defendant are nothing but self-serving nonsense.

The second “gotcha” is that the court limited the beliefs that the defendant could present to the jury to beliefs about the meaning of the statutes, regulations, forms, and instructions, and not the meaning of the Constitution.

“Claims that some of the provisions of the tax code are unconstitutional ... do not arise from innocent mistakes caused by the complexity of the Internal Revenue Code. Rather, they reveal full knowledge of the provisions at issue and a studied conclusion, however wrong, that those provisions are invalid and unenforceable. ... We do not believe that Congress contemplated that such a taxpayer, without risking criminal prosecution, could ignore the duties imposed upon him by the Internal Revenue Code and refuse to utilize the mechanisms provided by Congress to present his claims of invalidity to the courts and to abide by their decisions.”

United States v. Cheek, 498 U.S. 192, 205-206 (1991).

The court therefore held that “a defendant’s views about the validity of the tax statutes are irrelevant to the issue of willfulness, need not be heard by the jury, and if they are, an instruction to disregard them would be proper.” 498 U.S. at 206.

Many tax protesters have also mistakenly viewed the “willfulness” issue as one that allows them to explain the correctness of their beliefs to the jury. Knowing that the judge will rule against them on the law, tax protester try to by-pass the judge and make their legal arguments to the jury, hoping that the jury will agree with them. But prosecutors (and judges) are not that stupid. The general rule is that the judge decides the law and the jury decides the facts. When the defendant is a tax protester, the judge will almost always instruct the jury that the defendant is wrong as a matter of law, and that the issue for the jury to decide is whether the beliefs of the defendant represent an innocent mistake or an intentional disagreement.

For example, Richard Simkanin testified during his criminal trial that he did not believe he needed to withhold taxes from his employees because he did not operate within the “extensive (and exclusive) list of industries and activities” found in the “7,000 pages” of the Internal Revenue Code. When the jury asked if they should check the Internal Revenue Code to see if Simkanin’s employees were within the occupations listed “in those 7,000,” the judge instructed the jury that he had “made a legal determination” that the Internal Revenue Code required the defendant to withhold taxes from his employees and the jury did not need to look at the Internal Revenue Code. The Fifth Circuit Court of Appeals held “the district court must be permitted to prevent the defendant’s alleged view of the law from confusing the jury as to the actual state of the law, especially when the defendant has constructed an elaborate, but incorrect, view of the law based on a misinterpretation of numerous IRC provisions taken out of proper context” and that the judge’s instructions, taken as a whole and including the instructions on “willfulness,” did not prevent the jury from properly considering the issue of willfulness. United States v. Simkanin, 420 F.3d 397, 2005-2 U.S. Tax Cas. (CCH) 50,507, (5th Cir. 2005), cert. denied, 126 S. Ct. 1911 (2006).

See also, United States v. Barnett, 945 F.2d 1296, 1300 (5th Cir. 1991) (“[t]he jury must know the law as it actually is respecting a taxpayer’s duty to file before it can determine the guilt or innocence of the accused for failing to file as required”).

Judges can also restrict the ability of tax protesters to “argue the law” to a jury by limiting the documentary evidence that the protester can show to the jury. Rule 403 of the Federal Rules of Evidence allow a judge to exclude evidence if there is a danger of (among other things) “misleading the jury.” Tax protesters who have attempted to substantiate their delusions by showing juries copies of regulations, court decisions, or other documents have often been frustrated by judges who have allowed the tax protesters to testify as to their beliefs about the meaning of the documents but refused to allow the jury to see the documents themselves. See, for example, United States v. Simkanin, 420 F.3d 397, 2005-2 U.S. Tax Cas. (CCH) 50,507 (5th Cir. 2005), cert. denied, 126 S. Ct. 1911 (2006); United States v. Flitcraft, 803 F.2d 184, 186 (5th Cir. 1986); United States v. Barnett, 945 F.2d 1296, 1300 (5th Cir. 1991).

Finally, there is a practical problem with the “Cheek defense” which is that, if you plan ahead to use it, then it is almost certain to fail, because your efforts to establish your “good faith belief” are going to be used by the government as evidence that you knew that what you were doing was wrong when you did it, which is why you worked to set up a defense in advance. Planning not to file tax returns and avoid prosecution using a “good faith belief” is kind of like planning to kill someone using a claim of “self-defense.” If you’ve planned in advance, then it shouldn’t work.

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There is a difference between the “United States” and the “United States of America.”

Occasionally, a tax protester will object to court proceedings on the ground that there is a difference between the “United States” and the “United States of America” and that the wrong one is the party to the court proceedings. Needless to say, there is no authority for this kind of nonsense, and these kinds of objections are dismissed out of hand.

“The Daweses argue that the United States lacked standing and the district court lacked subject matter jurisdiction because (1) ‘United States of America’ and ‘United States’ are not synonymous, and the United States of America is not the proper plaintiff under 28 U.S.C. § 1345; ... and (4) the Internal Revenue Service (IRS) is not an agency of the United States and the Chief Counsel of the IRS is not a delegate of the Secretary of the Treasury expressly authorized to sue under 26 U.S.C. § 7401. Their first and fourth arguments are legally frivolous and do not merit further comment.”

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 in this context the ‘United States of America’ is synonymous with the ‘United States.’”).

A somewhat similar claim that is sometimes made is that there are two different entities known as the “United States of America.”

“Beresford insists that the United States is not a proper defendant and that attorneys from the Department of Justice and United States Attorney may not represent defendant. He also contends that there are two different legal entities named the United States of America. The United States is the only proper defendant in a suit to recover a tax refund. It is to be substituted for other named defendants. 26 U.S.C. section 7422(f). His contention about different legal entities and which attorneys may represent the defendant are frivolous.”

Steven M. Beresford v. IRS, et al., 86 AFTR2d 2000-5200, No. 00-293-KI (U.S.D.C. Dist. Ore. 7/13/2000), aff’d 2001 U.S. App. LEXIS 3187, KTC 2001-108 (9th Cir. 2/23/2001).

“Wright brings what he has labeled a ‘motion to dismiss for plaintiff’s lack of standing and misjoinder of parties.’ ... Wright objects to the fact that the named plaintiff in this suit is the ‘United States of America.’ He argues that only the ‘United States’ and not the ‘United States of America’ has standing to bring this action. These arguments are patently frivolous and the motion is thus summarily DENIED.”

United States v. Wright, 83 A.F.T.R.2d 99-533, KTC 1998-630, No. S-94-1183 (U.S.D.C. E.D.Cal. 1998), (action by the United States to reduce the taxes assessed to a judgment against the defendant).

“Spitzer argues in his brief that the Government lacked standing to sue because it brought the lawsuit in the name of the ‘United States of America’ rather than the ‘United States.’ The argument is patently frivolous and merits no discussion.”

United States v. James A. Spitzer, 2007 TNT 163-5, n. 2, No. 07-11073 (11th Cir. 8/21/2007) (also imposing sanctions for bringing a frivolous appeal), aff’ng No. 06-00479-CV-ORL-22JGG (U.S.D.C. M.D. Fla. 2/13/2007) (erroneous refund of $16,614 ordered repaid). In a later order, the District Court also ordered Spitzer to pay double attorneys’ fees to the United States, in the amount of $16,285.35, “as a sanction for his frivolous and bad faith defense of the entire case.” Id., Docket #49 (7/25/2007).

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There is a difference between “United States District Courts” and “District Courts of the United States.”

A few tax protesters have tried to escape from tax liabilities by claiming that there is a difference between “United States District Court” and “District Courts of the United States,” typically arguing that one is a court established under Article III of the Constitution and the other is not. Which is which? I don’t know (or care). Both phrases appear in the United States Code (i.e., the statutes of the United States) and are used interchangeably. So, either way, it’s nonsense.

“Mr. Smith makes an elaborate, albeit misguided, argument challenging the jurisdiction of the district court, claiming a ‘United States District Court’ is different in kind from the ‘district courts of the United States.’ This argument is poppycock.”

Smith v. Rubin, KTC 1998-79, No. 97-1242 (10th Cir. 1998) (unpublished).

“Contrary to the Daweses’ frivolous assertions, ... an Article III judge did decide this case, and the district court did have Article III judicial power.”

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).

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The Internal Revenue Service must comply with the Fair Debt Collection Practices Act when it collects taxes.

This is contracted by the plain language of the federal Fair Debt Collection Practices Act, which specifically excludes from its scope any “an officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties.” 15 U.S.C. §§ 1692a(6).

But the plain language of a statute is never enough to stop a tax protester once he’s gotten an idea in his head, so several courts have had to address this issue:

“In his attack on the summonses, plaintiff first alleges that the summonses violate the Fair Debt Collection Practices Act (‘FDCPA’), 15 U.S.C. §§ 1692 through 1692p. The FDCPA applies to ‘debt collection practices by debt collectors.’ 15 U.S.C. § 1692(e). A ‘debt’ is defined as ‘any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes.’ 15 U.S.C. § 1692a(5). A ‘debt collector’ is a person engaged in ‘the collection of debts’ and the definition specifically excludes ‘an officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties.’ 15 U.S.C. §§ 1692a(6), 1692a(6)(C). Contrary to plaintiff’s assertion, therefore, federal taxes are not a debt, and the IRS is not a debt collector. The FDCPA does not apply.”

Kirk Bandy v. United States, 2008 TNT 82-83, No. 6:07-cv-01386 (U.S.D.C. Kan. 4/24/2008) (motion to quash summons dismissed).

“[T]o the extent the Israels’ pleadings may have set forth a claim under the Fair Debt Collection Practices Act, that claim is dismissed because the Israels’ tax deficiencies do not qualify as a ‘debt,’ nor do the IRS or its agents constitute ‘debt collectors’ for the purposes of that Act. See 15 U.S.C. §§ 1692a(5) (classifying a ‘debt’ as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes’); 1692a(6)(C) (noting that only a ‘person’ can qualify as a ‘debt collector,’ then exempting ‘any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties’).”

Kenneth L. Israel et ux. v. Mark Everson, 2005 TNT 222-18, No. 4:05-cv-00184-JEG (U.S.D.C. S.D. Iowa 10/14/2005).

“We likewise reject Al-Sharif’s due process claims under the FDCA [Fair Debt Collection Act] and FTCA. The FDCA was designed ‘to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.’ 15 U.S.C. § 1692(e). However, the term ‘debt collector’ does not include an ‘officer or employee of the United States … to the extent that collecting or attempting to collect any debt is in the performance of his official duties[.]’ 15 U.S.C. § 1692a(6)(C). Al-Sharif therefore has no right of action against the individual IRS agents under the FDCA.”

Al-Sharif v. United States, KTC 2008-493, No. 08-10741 (11th Cir. 2008), aff’ng KTC 2008-150, No. 07-00050-cv-1 (U.S.D.C. S.D. Ga. 2008).

See also, Staub v. Harris, 626 F.2d 275, 278 (3d Cir. 1980) (“at a minimum, the statute contemplates that the debt has arisen as a result of the rendition of a service or purchase of property or other item of value. The relationship between taxpayer and taxing authority does not encompass that type of pro tanto exchange which the statutory definition envisages” ); Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 401 (3rd Cir. 2000) (homeowner’s property tax obligations do not constitute “debts” under the FDCPA); IRS v. Westberry, 215 F.3d 589, 591 (6th Cir. 2000) (income taxes should not be considered consumer debt for purposes of the §1301 co-debtor stay); Beggs v. Rossi, 145 F.3d 511, 512 (2nd Cir. 1998) (tax on automobiles not a “transaction” for purposes of the FDCPA because “the tax is not levied upon the purchase or registration of the vehicle per se, but rather upon the ownership of the vehicle by the citizen”).

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Procedural Fallacies

The Internal Revenue Service has never adopted any regulations imposing any income tax. Furthermore, failing to file a tax return is not a crime because the relevant provisions of the Internal Revenue Code have never been implemented by regulations.

As a general rule, a statute does not require regulations to be valid, and the fact that there are no regulations under a particular section of the Internal Revenue Code is almost always irrelevant.

“Donald Langert argues that he does not owe federal individual income taxes because the Internal Revenue Service has failed to identify any agency regulation which entitles the IRS to impose a tax upon him. Plaintiff argues that the statutes which comprise the Internal Revenue Code do not, in and of themselves, authorize the IRS to take any action; the IRS may only ‘implement’ these statutes through the regulations contained in Title 26 of the Code of Federal Regulations.

“The Court finds Plaintiffs ‘implementing regulation’ argument without merit; it fundamentally misconstrues those provisions of the Internal Revenue Code which relate to the powers and duties of the Secretary of the Treasury, 26 U.S.C. section 7801(a), and the Commissioner of the Internal Revenue Service, 26 U.S.C. section 7802(a). Pursuant to Section 7805(a) of the Code, the Commissioner has broad authority to ‘prescribe all NEEDFUL rules and regulations for the enforcement of [the Code], including all rules and regulations as may be NECESSARY by reason of any alteration of law in relation to internal revenue.’ 26 U.S.C. section 7805(a) (emphasis added); see also Commissioner of Internal Revenue v. Engle 464 U.S. 206, 226-27, 104 S. Ct. 597, 604 (1984). Section 7805(a) is a general grant of authority by Congress to the Commissioner to promulgate -- as necessary -- ‘interpretive regulations’ stating the agency’s views of what the existing Code provisions already require. E. I. du Pont de Nemours & Co. v. Commissioner of Internal Revenue, 41 F.3d 130, 135 & n. 20 (3th Cir. 1994). Section 7805(a) does not require the promulgation of regulations as a prerequisite to the enforcement of each and every provision of the Code. The Commissioner’s power to promulgate regulations pursuant to section 7805(a)

. . . ‘is not the power to make law,’ but only the power ‘to carry into effect the will of Congress as expressed by the statute.’ In case where ‘the provisions of the [Code] are unambiguous, and its directions specific, there is no power to amend it by regulation.’

“Lovett’s Estate v. United States, 621 F.2d 1130, 1135 (Ct. Cl. 1980) (citations omitted). Thus, if the Congressional mandate of a Code provision is sufficiently clear, an interpretative regulation is not necessary.”

Langert v. United States, KTC 1995-398, Case No. 3-94-1464 (D.Minn. 1995), (footnotes omitted).

“The statutes themselves require the payment of the tax and the filing of a return. 26 U.S.C. § 6012. The contents of the required return are described, in a general way, right in the statute. If a taxpayer had done his best to fashion and file a homemade return for want of notice of the IRS forms, and had paid the applicable tax, then 5 U.S.C. § 552 might protect him from being ‘adversely affected’ by nonpublication of a form. However, the Bowers simply have evaded income taxes, and their 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), (footnotes omitted).

See also, United States v. Koliboski, 732 F.2d 1328, 1329 (7th Cir. 1984); United States v. Saunders, 951 F.2d 1065, 1067-68 (9th Cir. 1991); Russell v. United States, 95-1 U.S. Tax Cas. (CCH) 50,029, at 87,122 (W.D. Mich. Nov. 23, 1994); Welch v. United States, 750 F2d 1101-11 (1st Cir. 1985), (prosecution under 26 U.S.C. § 6702 for filing frivolous return not barred by nonpublication of interpretive IRS guidelines); Stafford v. Commissioner, T.C. Memo. 1997-50 n.12 (“the absence of implementing regulations would not, generally speaking, preclude the Commissioner from enforcing sections of the Internal Revenue Code. Provisions of the Internal Revenue Code generally do not require implementing regulations as a prerequisite to enforcement.”), affd. without published opinion 146 F.3d 868 (5th Cir. 1998).

The claim that the provisions of the Internal Revenue Code “are ineffective or inoperative, including the sections imposing an income tax or requiring the filing of tax returns, because the provisions have not been implemented by regulations even though the provisions in question either (a) do not expressly require the Secretary to issue implementing regulations to become effective or (b) expressly require implementing regulations which have been issued” 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 making their “implementing regulations argument, tax protesters frequently cite (and quote from) California Bankers Association v. Shultz, 416 U.S. 21, 26 (1974), in which the Supreme Court stated:

“[T]he Act’s civil and criminal penalties attach only upon violation of regulations promulgated by the Secretary. If the Secretary were to do nothing, the Act itself would impose no penalties on anyone.”

There are at least two problems with this quotation. First, “the Act” in question was the Bank Secrecy Act of 1970, and not the Internal Revenue Code, so the quotation is out of context. Secondly, the purpose of the regulations described in the Bank Secrecy Act was completely different from the purpose of tax regulations. The Bank Secrecy Act authorized the Secretary of the Treasury to adopt regulations for record-keeping and financial reporting by banks and other financial institutions, and imposed civil and criminal penalties for failing to comply with the regulations, not the statute. It was therefore clear that, if there were no regulations, there were no penalties. The distinction between the statute and the regulations was significant to the Supreme Court, which upheld the constitutionality of the statute, because the language of the statute was attacked as overly broad and a violation of the 4th Amendment, but the regulations that were actually adopted by the Secretary were more narrowly drawn and passed constitutional muster. The Internal Revenue Code is completely different, because (as explained above) the statute itself is sufficient to establish liability for the tax and for civil and criminal penalties, and the Code itself is constitutional whether or not regulations are issued.

The courts have therefore rejected every attempt by tax protesters to claim that California Bankers has any relevance to the enforcement of the tax laws.

“Sasscer argues that “any IR Code section without an implementing regulation has no force of law and authorizes no action by IRS personnel,” and cites California Bankers Association v. Shultz, 416 U.S. 21 (1974), and Caha v. United States, 152 U.S. 211 (1894). California Bankers’ Association noted in upholding the Bank Secrecy Act (not the tax laws) “that the [Bank Secrecy] Act’s civil and criminal penalties attach only upon violation of regulations promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone.” 416 U.S. at 26. A provision of the Bank Secrecy Act is irrelevant to Sasscer’s tax liability and the authority of the IRS. Caha affirmed a conviction of perjury, finding that the district court had jurisdiction and that a law, not “a mere regulation of a department,” had been broken. 152 U.S. at 218. Neither case can help Sasscer’s claims.”

United States v. John L. Sasscer, 86 AFTR2d 2000-5585, 2000 TNT 235-8, Civil No. Y-97-3026 (U.S.D.C. Md. 11/8/2000) (granting summary judgment for the United States).

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The Office of Management and Budget does not require any form for the income tax imposed by section 1 of the Internal Revenue Code, or identifies section 1 of the Code as applying only to nonresident aliens.

More nonsense.

The actual facts are these:

Because Form 1040 is not listed as a tax form for section 1, but Form 2555 once was, tax protesters concluded that section 1 applies only to foreign income, and so only foreign income is taxable, which is completely wrong.

The cross-reference between Form 2555 and section 1 was wrong from the start, because the Paperwork Reduction Act relates to forms for the collection of information and section 1 is not the section that requires income tax returns. Section 1 of the Internal Revenue Code (and Treas. Reg. § 1.1-1) imposes a tax on taxable income and provides the rates for calculating the tax but does not actually require the collection of any information. The obligation to file a tax return is imposed by section 6012.

The IRS eventually realized that the reference to Form 2555 was inconsistent with other cross-references and in 1994 the listing of OMB numbers for IRS forms was amended by deleting the reference to Treas. Reg. § 1.1-1 and adding OMB Control No. 1545-0067 (Form 2555) to the forms required by Treas. Reg. § 1.6012-1. (Document 94-1253, filed May 24, 1994.)

Of course, the inferences drawn by tax protesters only flow in one direction. To a tax protester, the publication of a cross-reference between section 1 and foreign income is proof that the tax protester is right, but the removal of the cross-reference is not proof that the tax protester is wrong.

So there was once a regulation that stated that a form used to report foreign income was a form required by section 1 of the Internal Revenue Code. Which is meaningless at best.

Only a few court opinions have been found with this argument:

“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, No. 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). (Kaetz’s brief, page 13-14, included the assertion that “26 CFR § 602.101 (1990) – lists the form’s OMB Control number 154-0067, which is the 2555, Foreign Earned Income form, as the only form to be filed by U.S. Citizens pursuant to § 1.1-1 of the Regulations and thus § 1 of the Internal Revenue Code (IRC).”)

“Petitioner understands that section 1 of the Internal Revenue Code imposes an income tax. Petitioner further understands that section 1.1-1, Income Tax Regs., explains and implements section 1. He has reviewed the references made to section 1.1-1, Income Tax Regs., in the OMB Control Number tables set forth at section 602.101, Statement of Procedural Rules. The reference in those tables for section 1.1-1, Income Tax Regs., does not include a reference to OMB numbers 1545-0675 or 1545-0074, which are the OMB numbers displayed on the Forms 1040EZ and 1040 submitted by petitioner for 1986 and 1987. Petitioner does not contend that the OMB numbers on these forms are invalid. Rather, he notes that the only OMB number, 1545-0067, found for section 1.1-1, Income Tax Regs., in the OMB number tables is the number assigned to Form 2555, Foreign Earned Income. Therefore, petitioner concludes that section 1 imposes a tax only on foreign earned income. He insists that Form 1040 (and Form 1040EZ) are simply supplemental forms for record keeping purposes.

“Petitioner has confused the imposition of the Federal income tax, set forth in section 1 and in section 1.1-1, Income Tax Regs., with the duty to file a return set forth in sections 6001, 6011, and 6012, together with their accompanying regulations. These latter regulations require the ‘collection of information’ on a Federal income tax return.

“The Internal Revenue Service has obtained OMB approval of the process of collecting information through Federal income tax returns. The OMB has assigned numbers 1545-0074, 1545-0675, and others to that process. Sec. 602.101(c), Statement of Procedural Rules. This process of collection of information is embodied and authorized in the regulations. These regulations include, among other things, those relating to taxpayers’ record keeping and reporting requirements (sec. 1.6001-1, Income Tax Regs.), those relating to the duty of taxpayers to file Federal income tax returns (sec. 1.6011-1, Income Tax Regs.), and those relating to persons required to file income tax returns (sec. 1.6012- 1, Income Tax Regs.).

[...]

“Petitioner’s only contention is that no return, upon which the addition to tax could be based, was required under the Internal Revenue Code. Petitioner’s claim primarily centers around his ‘OMB number’ argument. We have previously rejected such an argument as constituting a reasonable cause for failure to file a return in a timely fashion. [Citation omitted.] Accordingly, the addition to tax under section 6651(a)(1) for 1987 is sustained.”

Partos v. Commissioner of Internal Revenue, T.C. Memo. 1991-408 (deficiency affirmed, along with penalties for failure to file and intentional disregard of rules and regulations, and sanction of $2,500 imposed, the court stating that it had “previously categorized ‘OMB number’ arguments as frivolous and groundless protestor allegations.”)

In Schroeder v. Commissioner, T.C. Memo. 2002-190, one of the arguments raised by the taxpayer was that “For Americans, including the self-employed, the only tax authorized under the sections referred to above [sections 1, 6001, 6011, and 6012] is Form 2555, titled ‘Foreign Earned Income,’ not Form 1040, as Americans have been led to believe.” The Tax Court rejected all of the arguments made by the taxpayer, describing them as “frivolous and groundless,” ruled that the IRS could proceed to levy upon the property of the taxpayer, and sanctioned the taxpayer $1,000 for having “wasted the Court’s time.”

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Form 1040 does not bear a valid OMB control number and so no penalty can be imposed for failing to file a tax return.

As explained above, the Paperwork Reduction Act (“PRA”), 44 U.S.C. §§ 3501-3520, requires that all forms used by the federal government for the “collection of information” be submitted to the Office of Management and Budget (OMB) for review and must bear a OMB control number. There is also a provision, 44 U.S.C. § 3512, which provides that penalties cannot be imposed on anyone for failing to comply with an information collection request that does not display a valid OMB control number or otherwise fails comply with the PRA. Some tax protesters have therefore argued that they cannot be penalized for failing to file a Form 1040 because it (or its instructions or regulations) does not display a valid OMB control number.

This argument has lost in every court, and on questions of both civil and criminal penalties, and the reasons it has lost usually fall into one of three different categories: (1) the OMB control number on Form 1040 is valid and Form 1040 complies with the PRA; (2) the instructions and regulations for Form 1040 do not require OMB control numbers; and (3) even if Form 1040 did not comply with the PRA tax penalties could still be imposed because the PRA penalty protection provision does not apply to reporting requirement imposed by statute.

The IRS (and Form 1040) complies with the PRA.

In each year since the PRA was enacted, the IRS has submitted the current year’s Form 1040 (and its schedules and variations, such as Form 1040EZ) to the OMB for approval and for renewed OMB control numbers in accordance with the Paperwork Reduction Act, and each year the OMB has approved the forms submitted by the IRS. For example, the Form 1040 for the tax year 2005 was submitted to the OMB on July 8, 2005, at 70 F.R. 39550. Form 1040 (and its various variations and schedules) is therefore listed in the “Inventory of Approved Information Collections” which is maintained by the Office of Management and Budget.

And the courts have unanimously agreed that the IRS has complied with the PRA.

“Finally, we have no doubt that the IRS has complied with the Paperwork Reduction Act. Form 1040 bears a control number from OMB, as do the other forms the IRS commonly distributes to taxpayers. That this number has been constant since 1981 does not imply that OMB has shirked its duty. Section 3507 requires periodic review, not a periodic change in control numbers. Patridge offers us no reason to think that the necessary review has not been conducted. The control number on Form 1040 appears on OMB’s web site as a current, valid number; if this is wrong, it takes more than a lawyer’s say-so to establish the proposition.”

United States v. Denny R. Patridge, 507 F.3d 1092, 1094-95, 2007 TNT 221-11, Nos. 06-3635 and 06-3785 (7th Cir. 11/14/2007), cert. den., No. 07-1045 (U.S. 3/24/2008) (conviction for tax evasion affirmed). Also, counsel for appellant, Jerrold Barringer, was given 14 days to show cause why he should not be sanctioned $10,000 for “frivolous arguments and noncompliance with the Rules” and why he should not be suspended from practice “until he demonstrates an ability to litigate an appeal competently and responsibly.” Sanctions were in fact imposed, and the Supreme Court denied a petition for mandamus by Barringer seeking review. In re: Jerold W. Barringer, No. 07-1140 (S.C. 4/14/2008).

United States v. Patridge was cited and relied on in Scott A. Lewis v. Commissioner, 523 F.3d 1272, 1276-77, No. 07-9006 (10th Cir. 4/29/2008) (“In fact, the agency has complied with the PRA by periodically updating the expiration date applicable to IRS Form 1040.”) See also, Wheeler v. Commissioner, 528 F.3d 773, 780-781, 2008 TNT 114-13, No. 07-9001 (10th Cir. 6/10/2008), aff’ng T.C. Memo. 2006-109, Nos. 14430-03, 7206-04 (May 22, 2006).

“[I]t is settled that the Commissioner has obtained OMB approval for collecting information through Federal income tax returns.”

McCart v. Commissioner, T.C. Memo. 1993-96.

“The IRS has obtained OMB approval of the process of collecting information through Federal income tax returns and has been assigned number 1545-0074 for that process. [Citations omitted.] Further, OMB control number 1545-0074 is displayed on the 1985 and 1986 Forms 1040 issued by the IRS. Therefore, petitioner’s argument that he was relieved of his obligation to report his income for taxable years 1985 and 1986 is inapposite.”

Schramm v. Commissioner, T.C. Memo. 1991-523, aff’d 988 F.2d 121 (9th Cir. 1993) (unpublished opinion).

“Petitioners have confused the imposition of the Federal income tax, set forth in section 1 of the Internal Revenue Code and in section 1.1-1 of its accompanying regulations, with the duty to file a return, set forth in sections 6001, 6011, 6012 of the Internal Revenue Code, together with their accompanying regulations. These latter regulations require the ‘collection of information’ on a Federal income tax return. They have been assigned an OMB number--1545-0074--as set forth at 26 C.F.R. sec. 602.101, Statement of Procedural Rules, and which in all respects appears valid. Petitioners have not shown any basis for holding that OMB number 1545-0074 (which is displayed on the 1981 Form 1040 as well as being assigned to the above regulations) is in any way invalid.”

Beam v. Commissioner, T.C. Memo. 1990-304 (footnote omitted), aff’d. 956 F.2d 1166 (9th Cir. 1992) (unpublished opinion).

“Petitioners’ arguments concerning the illegality of Form 1040 under the Paperwork Reduction Act of 1980, 44 U.S.C. secs. 3501-3520 (1988), are entirely without basis in fact. ... The Internal Revenue Service has obtained OMB approval of the process of collecting information through Federal income tax returns.”

Pekrul v. Commissioner, T.C. Memo. 1992-455, aff’d 993 F.2d 884 (9th Cir. 1993) (unpublished opinion).

See also, Brock v. Commissioner, T.C. Memo. 1990-197; Warden v. Commmissioner, 1990-321; Aldrich v. Commissioner, T.C. Memo. 1993-290; Allnutt v. Commissioner, T.C. Memo. 1991-6, aff’d 956 F.2d 1162 (4th Cir. 1992) (unpublished opinion) (no merit in the taxpayer’s argument that the Commissioner failed to comply with the provisions of the PRA); Richard J. Barzeski v. Commissioner, 2006 TNT 61-11, No. 05-4012 (3rd Cir. 3/28/2006) (unpublished decision affirming Tax Court decision rejecting claim that tax forms carry “an expired number from the Office of Management and Budget, in violation of the Paperwork Reduction Act” and imposition of $5,000 in sanctions and imposing additional sanction of $1,000 for a frivolous appeal).

Exactly why tax protesters continue to believe that Form 1040 does not comply with the PRA is often unclear. One argument seems to be that the OMB control numbers on the current tax forms are invalid because they are the same numbers as was printed on the forms in previous years. However, these are the numbers that have been approved by the OMB and there is nothing in the statute or regulations to require that a form that is revised or re-issued each year must have a new control number each year. Several courts have therefore confirmed that the continuing use of the same control number is valid if approved by the OMB.

“That this number [OMB #1545-0074] has been constant since 1981 does not imply that OMB has shirked its duty. Section 3507 requires periodic review, not a periodic change in control numbers.”

United States v. Denny R. Patridge, 507 F.3d 1092, 1094-95, 2007 TNT 221-11, Nos. 06-3635 and 06-3785 (7th Cir. 11/14/2007), cert. den., No. 07-1045 (U.S. 3/24/2008) (conviction for tax evasion affirmed); Lewis v. Commissioner, 523 F.3d 1272, 1276-77, No. 07-9006 (10th Cir. 4/29/2008).

Another taxpayer made a more complicated argument:

“Petitioners’ reasoning is somewhat convoluted in that they argue, for example, that the Form 1040 has a control number for 1999, but that the control number expires on December 31, 1999, before the form is used in 2000 (typically on or before April 15, 2000) to report income for 1999. Under petitioners’ interpretation, respondent would face the conundrum of never being able to have a valid control number, because the form must be prepared, printed, and distributed prior to filing time, which begins January 1st each year. Accordingly, we find petitioners’ initial argument to be sophistry and without merit. The Forms 1040 contain a control number that has been provided and displayed in accord with the PRA.”

Willis v. Commissioner, T.C. Memo. 2008-233, aff’d 2009 TNT 212-10, No. 09-60334 (11/4/2009) (unpublished).

It has also been argued that the forms themselves must display an expiration date for the OMB control numbers, but this argument has also been rejected. Lewis v. Commissioner, 523 F.3d 1272, 1276-77, No. 07-9006 (10th Cir. 4/29/2008) (“We hold that the current version of the PRA does not require any expiration date to be printed on Form 1040”); United States v. Collins, 920 F.2d 619 (10th Cir. 1990).

A more recent argument is that Form 1040 does not comply with the PRA because it does not include a statement that “the person who is to respond to the collection of information that such person is not required to respond to the collection of information unless it displays a valid control number” as required by the “public protection” provision of the PRA, 44 U.S.C. § 3512(a)(2). The IRS currently provides that statement in the instructions to Form 1040, but not on the Form 1040 itself, and the argument is that the statement must be on the Form 1040 itself. (The instructions to Form 1040 for 2005 contains a “Disclosure, Privacy Act, and Paperwork Reduction Act Notice” on page 78 that includes the statement that “You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number.” The Form 1040 itself contains the statement “For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 78” at the bottom of the first page, so the first page of Form 1040 contains both an OMB control number and directions to the Paperwork Reduction Act notice.)

An immediate problem with the argument that the PRA notice must be on the form itself is that the statute does not require that the “collection of information” contain the notice, but only that “the agency inform the person” without specifically requiring how or where the agency provide that information. (By contrast, § 3512(a)(1) requires that the “collection of information” display a valid control number.)

The regulations that have been promulgated by the OMB confirm that the requirement that an agency inform “the potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number” (5 C.F.R. § 1320.5(b)(2)(i)) may be carried out “in a manner that is reasonably calculated to inform the public” (5 C.F.R. § 1320.5(b)(2)(ii)), and that “In the case of forms, questionnaires, instructions, and other written collections of information sent or made available to potential respondents (other than in n electronic format), the information described in paragraph (b)(2)(i) of this section is provided ‘`in a manner that is reasonably calculated to inform the public’ if the agency includes it either on the form, questionnaire or other collection of information, or in the instructions for such collection.” 5 C.F.R. § 1320.5(b)(2)(ii)(A).

These regulations are consistent with the language of the statute and the legislative history. For example:

“For collections of information contained in a rule, agencies must provide the required information in a manner reasonably calculated to inform the public. Notice may be provided in the preamble to a final rule containing the collection of information, or in a general notice in the volume of the Code of Federal Regulation in which the agency’s regulations appear.”

House Report 104-99 at 36-37.

Placing the required notice in the instructions to Form 1040, with a cross-reference printed on the bottom of the first page of Form 1040, is therefore perfectly consistent with the statute, the regulations, and the legislative intent.

Courts that have addressed this issue have agreed that the information in the instruction booklet to Form 1040 provides the required notice:

“The IRS, an agency, satisfies this obligation [to inform the persons filling out tax forms that they are not required to respond unless the form displays a valid control number] by making these disclosures in the instruction booklet associated with Form 1040.”

Lewis v. Commissioner, 523 F.3d 1272, 1276-77, No. 07-9006 (10th Cir. 4/29/2008).

“In that opinion [Lewis, supra] opinion we explained that the PRA does not require each form requesting information to inform the person responding to the request that he or she is not required to respond unless a valid control number is displayed. The requirement is simply that the agency must provide that information. We held that ‘[t]he IRS, an agency, satisfies this obligation by making these disclosures in the instruction booklet associated with Form 1040.’”

Raymond C. Wheeler v. Commissioner, 528 F.3d 773, 780-781, 2008 TNT 114-13, No. 07-9001 (10th Cir. 6/10/2008) (emphasis in original; sanctions of $4,000 imposed for frivolous appeal), aff’ng T.C. Memo. 2006-109, Nos. 14430-03, 7206-04 (May 22, 2006).

The instructions and regulations for Form 1040 do not require OMB control numbers.

Another argument raised by tax protesters is that they can’t be penalized for not filing a Form 1040 because the instructions to Form 1040, or the income tax regulations that might need to be consulted to prepare an accurate return, do not have an OMB control number. Needless to say, this argument has also been unanimously rejected.

“Petitioner also contests her liability for the negligence additions to tax on the grounds that respondent’s regulations and the instructions accompanying Forms 1040 do not comply with the requirements of the Paperwork Reduction Act of 1980 (PRA), 44 U.S.C. Secs. 3501-3520 (1988). ... A number of courts, including the Tax Court, recently have addressed petitioner’s argument and have held that the PRA does not apply to either Federal income tax regulations or to the instructions accompanying Federal tax forms because such documents are not information requests; rather they are designed to assist taxpayers to complete tax forms and to more easily comply with information collection requests.”

Ferguson v. Commissioner, T.C. Memo. 1992-95, aff’d 995 F.2d 223 (5th Cir. 1993) (without published opinion), cert. denied 510 U.S. 918 (1993).

See also, United States v. Dawes, 951 F.2d 1189 (10th Cir. 1991); James v. United States, 970 F.2d 750, 753-54 n. 6 (10th Cir. 1992) (“Lack of an OMB number on IRS notices and forms does not violate [the PRA]”); Schott v. Commissioner, T.C. Memo. 1991-457; Salberg v. United States, 969 F.2d 379, 384 (7th Cir. 1992) (“every court that has considered the argument that the regulations and instruction books promulgated by the IRS are within the scope of the PRA has rejected it. [Citations omitted.] We do the same.”); United States v. Denny R. Patridge, 507 F.3d 1092, 2007 TNT 221-11, Nos. 06-3635 and 06-3785 (7th Cir. 11/14/2007) (“[W]e take this occasion to hold that the 1995 amendments to the Act do not alter Salberg’s conclusion.”), cert. den., No. 07-1045 (U.S. 3/24/2008); United States v. Holden, 963 F.2d 1114, 1116 (8th Cir. 1992) (tax instruction booklets are not subject to the PRA); United States v. Kerwin, 945 F.2d 92, 92 (5th Cir. 1991) (per curiam); United States v. Wunder, 919 F.2d 34, 38 (6th Cir. 1990).

Even if the Form 1040 did not comply with the PRA, tax penalties could still be imposed because the PRA penalty protection provision does not apply to reporting requirement imposed by statute.

Even if the IRS had not complied with the Paperwork Reduction Act, it would have had few (if any) consequences for most taxpayers, because there is a difference between paperwork required by an agency of the federal government and paperwork required by Congress itself, and the courts have uniformly agreed that any failure by the IRS to comply with the PRA would not relieve taxpayers from civil or criminal penalties for failure to file tax returns.

“Where an agency fails to follow the PRA [Paperwork Reduction Act] in regard to an information collection request that the agency promulgates via regulation, at its own discretion, and without express prior mandate from Congress, a citizen may indeed escape penalties for failing to comply with with the agency’s request. [Citations omitted.] But where Congress sets forth an explicit statutory requirement that they citizen provide information, and provides statutory criminal penalties for failure to comply with the request, that is another matter. This is a legislative command, not an administrative request. The PRA was not meant to provide criminals with an all-purpose escape hatch.”

United States v. Hicks, 947 F.2d 1356 (9th Cir. 1991).

“Congress did not enact the PRA’s public protection provision to allow OMB to abrogate any duty imposed by Congress. ... So the PRA provides Neff no refuge from his statutorily-imposed duty to file income tax returns”

United States v. Neff, 954 F.2d 698, 699-700 (11th Cir. 1992).

“[T]he requirement to file a tax return is mandated by statute, not regulation. Defendant was not convicted of violating a regulation but of violating a statute which required him to file an income tax return.”

United States v. Wunder, 919 F.2d 34, 38 (6th Cir. 1990).

“Paperwork Reduction Act does not apply to the statutory requirement that a taxpayer must file a return”

United States v. Kerwin, 945 F.2d 92 (5th Cir. 1992).

“[P]etitioner’s argument that the PRA may in some manner negate statutory penalties for failure to file tax returns and pay taxes is without merit. Because the requirement to file tax returns and the imposition of penalties for failing to do so represents a ‘legislative command, not an administrative request’, the PRA provides no ‘escape hatch’ from penalties for failing to file tax returns. [Citations omitted.] Citing dicta in the unpublished, nonprecedential opinion of Pond v. Commissioner, 211 Fed. Appx. 749 (10th Cir. 2007), affg. T.C. Memo. 2005-255, petitioner suggests that 1995 amendments to the PRA call into question these well-established judicial precedents. Petitioner has identified, however, and we have discovered nothing in the 1995 amendments to the PRA to suggest that they had this purpose or effect.”

Richard N. Pate v. Commissioner, T.C. Memo. 2007-132, aff’d 2008 TNT 23-39, No. 07-60731 (5th Cir. 1/31/2008). (The Pond decision is described below.)

“Salberg was convicted of violating a statute. It was a federal statute--26 U.S.C. Sec. 7203--not a regulation or an instruction book that required Salberg to file an income tax return. Statutes are not subject to the PRA ....’’

Salberg v. United States, 969 F.2d 379, 384 (7th Cir. 1992).

“The last of the issues we address is Patridge’s contention that the Paperwork Reduction Act of 1980, 44 U.S.C. §§ 3501-21, forecloses his conviction. This contention is as weak as the other 18, but it has been raised in several recent appeals -- despite the fact that it was considered and rejected in Salberg v. United States, 969 F.2d 379 (7th Cir. 1992) -- so we take this occasion to hold that the 1995 amendments to the Act do not alter Salberg’s conclusion.

“Section 3507 provides that an agency needs the approval of the Office of Management and Budget to collect information, and § 3512(a)(1) adds that ‘no person shall be subject to any penalty for failing to comply with a collection of information that is subject to this subchapter’ unless OMB’s approval is evinced by a ‘valid control number’ on the agency’s demand for information. Per § 3507(g), OMB ‘may not approve a collection of information for a period in excess of 3 years.’ Patridge observes that the IRS’s Form 1040 has displayed the same control number since 1981 and argues that it must therefore represent an approval lasting for more than 3 years. Moreover, he asserts that the IRS did not obtain a new approval between the 1995 amendments and the adoption of forms for tax years 1996 and 1997, so these forms must be (in counsel’s words) ‘outlaw and bootleg.’ Finally, Patridge contends that all IRS forms are invalid because they do not tell taxpayers that the lack of a valid control number means that they need not supply any information.

“How any of this could block a conviction for tax evasion is a mystery. Patridge evaded taxes by shuffling his income among trusts in an attempt to conceal it from the IRS. That crime does not depend on the contents of any form. Evading one’s taxes is illegal independent of the information one does or does not supply. Consider another example: the Clean Air Act requires businesses to curtail certain emissions using the best available technology, and to report on those emissions to the EPA. An error in the EPA’s forms might spare the business any penalties for bad information but would not license it to emit pollution without limit. The Paperwork Reduction Act does not change any substantive obligation.

Anyway, as we held in Salberg, the obligation to file a tax return stems from 26 U.S.C. § 7203, not from any agency’s demand. The Paperwork Reduction Act does not repeal § 7203. Repeal by implication depends on inconsistency that makes it impossible to comply with the newer law while still honoring the old one, [citations omitted], and there is no such inconsistency between § 7203 and the Paperwork Reduction Act. One reason for this is that § 7203 requires a ‘return’ but does not define that word or require anyone to use Form 1040, or any “official” form at all. All that is required is a complete and candid report of income.”

United States v. Denny R. Patridge, 507 F.3d 1092, 1094, 2007 TNT 221-11, Nos. 06-3635 and 06-3785 (7th Cir. 11/14/2007), cert. den., No. 07-1045 (U.S. 3/24/2008) (conviction for tax evasion affirmed). Also, counsel for appellant, Jerrold Barringer, was given 14 days to show cause why he should not be sanctioned $10,000 for “frivolous arguments and noncompliance with the Rules” and why he should not be suspended from practice “until he demonstrates an ability to litigate an appeal competently and responsibly.” Sanctions were in fact imposed, and the Supreme Court denied a petition for mandamus by Barringer seeking review. In re: Jerold W. Barringer, No. 07-1140 (S.C. 4/14/2008).

“We would be inclined to follow the general analysis of Wunder and Hicks and hold that the operation of the PRA in these circumstances did not repeal the criminal sanctions for failing to file an income tax return because the obligation to file is a statutory one.’’

United States v. Dawes, 951 F.2d 1189, 1192 (10th Cir. 1991).

“Because the duty to file income tax returns arises out of valid federal statutes rather than regulations, the court finds that the defendant’s argument that the penalty bar contained in the PRA at 44 U.S.C. § 3512 warrants dismissal of the instant Indictment is without merit.”

United States v. Pottorf, 769 F. Supp. 1176, 1177 (D. Kan. 1991).

See also, United States v. Holden, 963 F. 2d 1114 (8th Cir. 1992); United States v. Bentson, 947 F2d 1353 (9th Cir. 1991); Lonsdale v. United States, 919 F.2d 1440, 1443-45 (10th Cir. 1990) (“PRA” not enacted “to create loophole in the tax code”); United States v. James, 970 F.2d 750, 753 n.6 (10th Cir. 1992) (lack of OMB number does not violate PRA); Befumo v. Commissioner, T.C. Memo. 1991-509, aff’d 968 F.2d 1220 (9th Cir. 1992) (unpublished opinion); United States v. Ryan, 969 F.2d 238, 240 (7th Cir. 1992).

It should also go without saying that the PRA would by its express terms only protect someone for failing to file a return, but could not possibly protect someone who has filed a false return, and yet at least one person has made that claim (and had it rejected). United States v. Chisum, 502 F.3d 1237, 1244 (10th Cir. 2007) (conviction for tax evasion affirmed; the PRA protects a person only “for failing to file information. It does not protect one who files information which is false”).

The Office of Management and Budget cited many of those cases, and followed those cases, when it adopted 5 C.F.R. 1320.6(e), which now provides that “The protection provided by paragraph (a) of this section does not preclude the imposition of a penalty on a person for failing to comply with a collection of information that is imposed on the person by statute--e.g., 26 U.S.C. Sec. 6011(a) (statutory requirement for person to file a tax return)....”

That regulation was added after the 1995 amendments to the PRA, and in proposing the regulation the OMB cited the Salberg, Neff, Dawes, Hicks, and Wunder decisions, concluding:

“In those cases, the courts concluded that Congress, in enacting the Paperwork Reduction Act, did not intend to require itself to comply with the requirements of that Act (and seek and obtain OMB approval) whenever Congress decides to impose a paperwork requirement on persons directly by statute.

“There is no legislative history pertinent to the Paperwork Reduction Act of 1995 that suggests that Congress intended to change this court interpretation for 44 U.S.C. 3512.

“Accordingly, where Congress imposes a collection of information directly on persons, by statute (as, e.g., in 26 U.S.C. Sec. 6011(a) and 42 U.S.C. Sec. 6938(c)), then the public protection provided by proposed Sec. 1320.6(a) would not preclude the imposition of penalties for a person’s failure to comply with the statutory mandate.”

60 F.R. 30437, 30441 (6/8/1995) (footnote omitted).

The IRS has ruled that claims that taxpayers are not required to file tax returns because of alleged violations of the Paperwork Reduction Act are “frivolous” and may result in civil or criminal penalties. Rev. Rul. 2006-21; 2006-15 IRB 1.

The claim that “There is no legal requirement to file a Federal income tax return because the instructions to Forms 1040, 1040A, or 1040EZ or the Treasury regulations associated with the filing of the forms do not display an OMB control number as required by the Paperwork Reduction Act of 1980, 44 U.S.C. § 3501 et seq., or similar arguments described as frivolous in Rev. Rul. 2006-21, 2006-15 I.R.B. 745” 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”

Like many tax protester arguments, the OMB number argument relies mostly on wishful thinking, and tax protesters who advocate this position usually claim to rely on a United States Supreme Court opinion, Dole v. Steelworkers, 494 U.S. 26 (1990), which the court stated that “Typical information collection requests [subject to the Paperwork Reduction Act] include tax forms, Medicare forms, financial loan applications, job applications, questionnaires, compliance reports, and tax or business records.” 94 U.S. at 33. Reliance on that opinion is misplaced.

Reliance on Dole v. Steelworkers is misplaced because the issue before the Supreme Court had nothing to do with tax forms, and nothing to do with the penalty protection provisions of the PRA. The question of whether a person can be punished for failing to file a federal tax return that did not have a OMB number was not before the court and never considered by the court. The quoted sentence is therefore what lawyers call “dicta” (Latin for “words”) and cannot be relied on with confidence, particularly when the words would have consequences which were not considered by the court.

It is also relevant that the actual holding the Supreme Court in Dole v. Steelworkers, that information that a federal agency might require to be given to employees, customers, and other third parties, and not to the agency itself, was not within the scope of the PRA, was reversed by Congress in the Paperwork Reduction Act of 1995, so the actual holding of the case is no longer good law and is no longer followed.

As explained above, there were several court decisions before 1995 holding that a failure by the IRS to comply with the PRA was not a defense to criminal or civil tax penalties. There is no evidence that Congress intended to change any of the results in any of those tax cases that had been decided by the lower courts when Congress amended the PRA in 1995.

Some tax protesters claim that the case of Robert Lawrence is some kind of evidence that the PRA defense will work. In that case, the government decided to dismiss an indictment and not prosecute Lawrence after he had raised the “PRA defense,” but the timing of the events was a coincidence. In response to a motion by Lawrence for legal fees from the government, the government explained that, in preparing for trial, it had discovered errors in the calculations of some of the taxes alleged to have been owed by Lawrence and that the amounts actually owed were less than what was claimed in the indictment. The judge refused to allow the government to amend the indictment, and so the government decided to dismiss the indictment rather run the risk that the jury would not convict Lawrence when it learned that the government itself could not accurately calculate his tax liabilities. In ruling for the government on the issue of legal fees, the judge stated that “In light of the cases that had addressed the PRA of 1980, as of the time that Lawrence was prosecuted, the Government had good reason to believe that the PRA defense (even based on the amended PRA of 1995) would not provide someone who failed to pay income taxes with a valid defense,” and referred to the possibility that a court might rule that the Paperwork Reduction Act of 1995 is a valid defense for failing to pay taxes as “unlikely.” The court therefore concluded that “Lawrence’s argument that the Government should have known that this [PRA defense] was the law at the time that Lawrence was prosecuted is ridiculous.” United States v. Lawrence, 2006 TNT 153-15, No. 06-10019 (U.S.D.C. C.D. Ill. 7/31/2006), aff’d 217 Fed.App’x 553, No. 06-3205 (7th Cir. 3/1/2007) (Lawrence “has no case support for his argument that the PRA so clearly foreclosed the criminal action as to render the conduct vexatious, frivolous or in bad faith, nor does the language of the PRA establish that proposition”).

One circuit has expressed a willingness to consider whether tax forms comply with the PRA. In Pond v. Commissioner, 211 Fed. Appx. 749, 2007 TNT 5-8, (10th Cir. 2007), affg. T.C. Memo. 2005-255, the court stated that “tax forms are information collection requests with the meaning of the Act,” citing the Supreme Court’s decision in Dole v. United Steelworkers of America, cited above. The court then stated that “we need to ask whether the 1040 is excepted from the two requirements set out above in 44 U.S.C. § 3512 [that the form display a valid control number and contain a notice that no response is required unless a control number is displayed] and, if not, whether the 1040 complies with those requirements.” However, the tax forms were not introduced into evidence and so the court had nothing to review and ruled against the taxpayer. Because the Pond decision merely expressed a willingness to consider the issues, and did not reach any conclusions, it has not changed the rulings of any other courts. See, for example, Richard N. Pate v. Commissioner, T.C. Memo. 2007-132, aff’d 2008 TNT 23-39, No. 07-60731 (5th Cir. 1/31/2008) (quoted above); Stanley C. Wolcott v. Commissioner, T.C. Memo. 2007-315 (no sanctions imposed for raising frivolous PRA arguments “in light of the newness at the time of trial in this case of the Tenth Circuit’s decision in Pond v. Commissioner, 211 Fed. Appx. 749 (10th Cir. 2007), affg. T.C. Memo. 2005-255, which petitioner appears to have misunderstood”). Furthermore, the 10th Circuit itself has rejected any possible reliance on the Pond decision, stating:

To support his PRA claim[,] Lewis attempts to rely on a recent unpublished decision Pond v. CIR, 211 F. App’x 749 (10th Cir. 2007). Even though unpublished decisions are of no precedential value in this court, we are aware of several misguided attempts to rely on this particular decision and thus, offer a brief clarification. In Pond, we recognized the PRA as applying to Form 1040, but declined to address the argument that the form violated the PRA because the defendant had not included any of the forms in the record. Id. at 752; see also United States v. Dawes, 951 F.2d 1189, 1192 (10th Cir. 1991). Lewis misreads that decision, claiming it states that “an argument based upon the PRA cannot be called ‘frivolous’ and dismissed without consideration.” Br. at 11. The unpublished decision said no such thing, and even affirmed the district court’s dismissal of the PRA claims as frivolous, while acknowledging that the PRA applies to Form 1040. Pond, 211 F. App’x at 752.

Scott A. Lewis v. Commissioner, 523 F.3d 1272, No. 07-9006, p. 6, n. 4 (10th Cir. 4/29/2008).

In Judy C. Cargill v. Commissioner, 272 Fed. Appx. 756, 2008 TNT 65-18, No. 07-14207 (11th Cir. 4/2/2008) (unpublished), the 11th Circuit agreed that tax forms are covered by the PRA, citing Dole v. United Steelworkers, but nevertheless followed its previous holding in United States v. Neff, 954 F.2d 698, 699-700 (11th Cir. 1992), that “Congress created [the taxpayer’s] duty to file the Returns in 26 U.S.C. § 6012(a), and . . . Congress did not enact the PRA’s public protection provision to allow OMB to abrogate any duty imposed by Congress,” the court stating that the claim that the appellant “was not required to file a federal tax return because the IRS 1040 Form failed to comply with the 1995 PRA is without merit, and the 1995 Amendments did not alter that result.”

Administrative Summonses

Some taxpayers have also argued that they need not comply with an administrative summons issued by the IRS because Form 2039 (or other investigative or audit forms used by the IRS) does not display an OMB control number. However, the Paperwork Reduction Act provides that the requirements of OMB review and an OMB control number do not apply to “an administrative action or investigation involving an agency against specific individuals or entities.” 44 U.S.C. § 3518(c)(1)(B)(ii). Several courts have therefore ruled that an IRS administrative summons does not need to display an OMB control number. Faber v. United States, 69 F. Supp. 2d 965, 969 (W.D. Mich. 1999); United States v. Particle Data, Inc., 634 F.Supp. 272, 275 (N.D.Ill. 1986); United States v. Tristina Elmes, 2009 TNT 235-11, No. 0:09-mc-61726 (U.S.D.C. S.D. Fla. 12/7/2009). See also, Cameron v. IRS, 593 F.Supp. 1540, 1556 (N.D.Ind. 1984), aff’d, 773 F.2d 126 (7th Cir.1985) (assessment and collection of taxes falls under PRA § 3518(c)(1)(B)(ii) exception to OMB control number requirement); Snyder v. IRS, 596 F.Supp. 240, 250 (N.D.Ind. 1984) (reaffirming Cameron).

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Form 1040 and its instructions were not adopted in accordance with the Administrative Procedure Act.

Tax protesters have occasionally argued that Form 1040 and its instructions constitute a “rule” for purposes of the Administrative Procedure Act (APA) and therefore must be published in the Federal Register.  This defense has been deemed “meritless.”  United States v. Bentson, 947 F.2d 1353, 1360 (9th Cir. 1991). The tax code itself, a statute and not a regulation, imposes the duty to file a return.  See 26 U.S.C. 6012.

See also United States v. Bowers, 920 F.2d 220, 221-23 (4th Cir. 1990) (APA protects only those with no notice: to reverse conviction, court would need to find that: (1) the statutes provided no notice of obligation to pay taxes, (2) the IRS forms and offices were secret -- although 200 million Americans know about them, and (3) the defendants, who had previously filed returns, had forgotten about the required forms and the IRS offices); United States v. Kahn, 753 F.2d 1208, 1222 (3d Cir. 1985) (claim that IRS failure to publish interpretive guidelines in Federal Register violates Title 5, U.S.C. § 552(a)(1)(D), “totally devoid of merit”).

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The Internal Revenue Code does not require any payment of tax by individuals, and the Internal Revenue Service has admitted this by failing to include any reference to section 1 or section 6012 in the Privacy Act Statement included in Form 1040.

At one time, the instructions to Form 1040 referred to section 6001 (the general requirement for a return for different kinds of taxes) but not section 6012 (which requires the filing of income tax returns by those with more than certain amounts of income). The instructions have been changed since then, and the “Disclosure, Privacy Act, and Paperwork Reduction Act Notice” now clearly refers to section 6012 as well as to sections 6001 and 6011.

But even when the instructions referred only to section 6001, courts had no difficulty in concluding that the liability for income tax, and the requirement to file a return, is imposed by the Internal Revenue Code and is not negated by the words used by the IRS on the tax forms. For example:

“[Billman] contends that, as a ‘private individual defined in the Privacy Act,’ he is not required to pay tax because the ‘IRS has admitted that the * * * [Internal Revenue Code] does not apply’ to such individuals. He notes that the Privacy Act requires the Internal Revenue Service to (5 U.S.C. sec. 552a(e)(3)): ‘inform each individual whom it asks to supply information * * * the authority * * * which authorizes the solicitation of the information.’ He then concludes that, because the Form 1040 ‘Privacy Act Notice’ fails to mention section 6012, I.R.C. 1954, he is not required to provide any tax related information and, indeed, is freed from paying any tax at all. In our judgment, petitioner’s position is based on sheer sophistry. We hold that the Form 1040 ‘Privacy Act Notice’ does satisfy the requirements of the Privacy Act, and that, in any event, even if there were a failure to comply with the Privacy Act, such failure would not nullify petitioner’s liability for Federal income taxes.”

Billman v. Commissioner, 83 T.C. 534 (1984), aff’d 847 F.2d 887 (D.C. Cir. 1988).

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The Internal Revenue Service is not an agency of the federal government, but a private corporation incorporated in Delaware (or, alternatively, an agency of the government of Puerto Rico).

This is silly.

Section 7801(a) of the Internal Revenue Code states that the administration and enforcement of the Code shall be performed by or under the supervision of the Secretary of the Treasury. Section 7802(a) then says that there shall be a Commissioner of Internal Revenue in the Department of the Treasury who shall have such duties and powers as may be prescribed by the Secretary of the Treasury. Finally, Section 7803(a) of the Code states that the Secretary is authorized to employ persons for the administration and enforcement of the Internal Revenue Code.

Acting under these laws, the Department of the Treasury has adopted regulations creating the Internal Revenue Service, of which the following is a part:

“The Internal Revenue Service is a bureau of the Department of the Treasury under the immediate direction of the Commissioner of Internal Revenue. The Commissioner has general superintendence of the assessment and collection of all taxes imposed by any law providing internal revenue. The Internal Revenue Service is the agency by which these functions are performed.”

Treas. Reg. Section 601.101(a).

The legitimacy and authority of the Internal Revenue Service has been confirmed by the Supreme Court:

“[T]he Internal Revenue Service is organized to carry out the broad responsibilities of the Secretary of the Treasury under section 7801(a) of the 1954 Code for the administration and enforcement of the internal revenue laws.”

Donaldson v. United States, 400 U.S. 517, 534 (1971).

And yet several courts have had to confirm that the IRS is indeed part of the government of the United States:

“It is clear that the Internal Revenue Code gave the Secretary of the Treasury full authority to administer and enforce the Code, and the power to create an agency to administer and enforce the tax laws. Pursuant to that legislative grant of authority, the Secretary created the Internal Revenue Service, so that the IRS is an agency of the Department of the Treasury, created pursuant to Congressional statute.”

Snyder v. IRS, 596 F.Supp. 240 (N.D. In. 1984).

“Plaintiff attempts to circumvent this conclusion by arguing that the IRS is ‘a private corporation’ because it was not created by ‘any positive law’ (i.e., statute of Congress) but rather by fiat of the Secretary of the Treasury. Apparently, this argument is based on the fact that in 1953 the Secretary of the Treasury renamed the Bureau of Internal Revenue as the Internal Revenue Service. However, it is clear that the Secretary of the Treasury has full authority to administer and enforce the Internal Revenue Code, 26 U.S.C. § 7801, and has the power to create an agency to administer and enforce the laws. See 26 U.S.C. § 7803(a). Pursuant to this legislative grant of authority, the Secretary created the IRS. 26 C.F.R. § 601.101. The end result is that the IRS is a creature of ‘positive law’ because it was created through congressionally mandated power. By plaintiff’s own ‘positive law’ premise, then, the IRS is a validly created governmental agency and not a ‘private corporation.’”

Young v. Internal Revenue Service, 596 F.Supp. 141 (N.D.Ind. 1984).

See also, Cameron v. IRS, 593 F.Supp. 1540, 1549 (N.D.Ind. 1984).

“We perceive no need to refute these arguments with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit. The constitutionality of our income tax system-including the role played within that system by the Internal Revenue Service and the Tax Court--has long been established.”

Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984), (responding to, among other things, a claim that the “Internal Revenue Service, Incorporated” lacks authority).

“Salman’s argument that the Internal Revenue Service is not a government agency is wholly without merit.”

Salman v. Jameson, 52 F.3d 334 (9th Cir. 1995). (Salman has now been enjoined against filing any other lawsuits against the IRS or the United States. See Salman v. Jameson, 97-1 USTC ¶50,452, 79 A.F.T.R.2d ¶97-2667, 97 TNT 97-24 (U.S.D.C. D.Nev. 1997).) See also, Salman v. Dept. of Treasury, 899 F. Supp. 471, 472 (D. Nev. 1995) (“The court finds there is no basis in fact for Salman’s contention that the IRS is not a government agency of the United States.”)

“Petitioner has devoted 3 pages of his 12-page reply brief to arguing that the Internal Revenue Service is not an “agency of the United States”. Presumably, petitioner intends by this argument to suggest that respondent has no authority to determine or collect petitioner’s income tax deficiencies.

[...]

“Petitioner’s argument is tax protester gibberish. It’s bad enough when ignorant and gullible or disingenuous taxpayers utter tax protester gibberish. It’s much more disturbing when a member of the bar offers tax protester gibberish as a substitute for legal argument.

“The Internal Revenue Service is an agency of the United States Department of the Treasury. Secs. 7801(a), 7803. Section 7801 provides that “the administration and enforcement of this title shall be performed by or under the supervision of the Secretary of the Treasury.” Section 7803(a) provides for the appointment of a Commissioner of Internal Revenue under the Department of the Treasury. Section 7803(a)(2) provides that the Commissioner of Internal Revenue shall, among other things, “administer, manage, conduct, direct, and supervise the execution and application of the internal revenue laws or related statutes and tax conventions to which the United States is a party”. Section 7804(a) authorizes the Commissioner to employ, supervise, and direct subordinate persons to administer and enforce the internal revenue laws. These sections of the Internal Revenue Code dispel any notion that the Internal Revenue Service is not authorized to administer and enforce the internal revenue laws.”

Edwards v. Commission, T.C. Memo 2002-169.

See also, Kay v. Summers, 86 AFTR 2d 7161, 7165, 2001-1 USTC ¶50,103, at 87,013 (D. Nev. 2000) (the contention “that the Internal Revenue Service is some sort of private corporation, not a government agency” is frivolous); United States v. Fern, 696 F.2d 1269, 1273 (11th Cir. 1983) (“Clearly, the Internal Revenue Service is a ‘department or agency’ of the United States.”); Thomson v. United States, 88 AFTR 2d 5620, 5621, 2001-2 USTC ¶50,614, at 89,521 (S.D. Fla. 2001) (“The Internal Revenue Service is a ‘department or agency’ of the United States.”).

The claim that “[t]he Service is not an agency of the United States government but rather a private-sector corporation or an agency of a State or Territory without authority to administer the internal revenue laws” 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 often claim that, in a footnote in Chrysler Corp. v. Brown, 441 U.S. 281, 297, n. 23 (1979), the Supreme Court “admitted” that no statute authorizing the Internal Revenue Service could be found, even though the justices searched back to the end of the Civil War. But that’s not what the Supreme Court said. What the footnote actually says is:

“There was virtually no Washington bureaucracy created by the Act of July 1, 1862, ch. 119, 12 Stat. 432, the statute to which the present Internal Revenue Service can be traced.”

441 U.S. at 297, n.23 (emphasis added).

Tax protesters seem to read a “not” into the sentence.

Tax protesters also like to cite a pleading (not a court opinion) that the government once filed in which the government denied that the IRS was an “agency” of the United States. That pleading has to be read in context. Someone had sued the Internal Revenue Service and the Department of Justice filed an answer which denied “that the Internal Revenue Service is an agency of the United States Government” but admitted “that the United States of America would be a proper party to this action.” The government therefore admitted that the actions of the IRS were the actions of the United States and that the United States is responsible for the actions of the IRS, but that the lawsuit should be against the United States and not the IRS. This was confirmed by a footnote in the court’s opinion:

“The Internal Revenue Service, and not the United States, was originally named as defendant in this action. However, the United States is correct that the Internal Revenue Service has no capacity to sue or be sued. [Citation omitted] Therefore, the United States is properly substituted for the Internal Revenue Service in this action.”

Diversified Metal Prods., Inc. v. T-Bow Co. Trust, 78 AFTR 2d 5830, 5832, n. 3, 96-2 USTC ¶50,437 at 85,462, n. 3 (D. Idaho 1996).

The action of the court in substituting the United States government for the IRS actually confirms (and not denies) that the IRS is part of the United States government. Why else would a lawsuit against the IRS be changed to a lawsuit against the United States?

Which means that tax protesters are citing a court case that refutes their argument and does not support them. Which is rather typical of tax protesters.

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The notices issued by the IRS are not valid because they were not signed by the Secretary of the Treasury personally and the Secretary has failed to properly delegate the authority to sign the notices.

More meaningless nit-picking from people trying to set up procedural roadblocks in order to avoid paying taxes.

There are many sections of the Internal Revenue Code that empower “the Secretary” to do certain things, such as the assessment of tax (I.R.C. section 6201) or the collection of taxes by levy (I.R.C. section 6331). However, the Code also defines “Secretary” to mean “Secretary of the Treasury or his delegate.” I.R.C. section 7701(a)(11)(B).

The Secretary typically delegates authority through “delegation orders” that describe the classes of IRS officers and employees that are authorized to take different types of actions. These delegation orders do not need to be published in the Federal Register because they do not affect the rights and obligations of taxpayers. “They are not substantive or legislative-type rules of law, but rather rules of internal agency/management procedure.” Stamos v. Commissioner, 95 T.C. 624 (1990), citing United States v. McCall, 727 F. Supp. 1252, 1254 (N.D. Ind. 1990). Delegation orders are therefore not easily found, but are summarized in the relevant sections of the Internal Revenue Manual.

Although there are many published cases in which taxpayers argued that the IRS officer who issued to notice of deficiency, notice of intent to levy, or other IRS action did not have proper authority, the courts have found valid delegation orders in every case. For example:

“The Commissioner’s authority to file a notice of Federal tax lien and/or issue a final notice of intent to levy has been delegated to a host of Internal Revenue Service personnel, including (in the case of Federal tax liens) various managers responsible for collection matters and GS-9 and above revenue officers and (in the case of levies on property in the hands of third parties) GS-9 and above revenue officers. See Delegation Order No. 191 (Rev. 2; Oct. 1, 1999) (Rev. 3; June 11, 2001), pertaining to levies; Delegation Order No. 196 (Rev. 4; Oct. 4, 2000), pertaining to liens. Consistent with these delegations of authority, the Notice of Federal Tax Lien and the notice required by section 6320, which were initiated by Revenue Officer John Stetsko and authorized by Acting Technical Support Group Manager Brenda McCullough, and the final notice of intent to levy, which was issued by Revenue Officer Stetsko, are valid.”

Everman v. Commissioner, T.C. Memo. 2003-137.

See also, Hughes v. United States, 953 F.2d 531, 536 (9th Cir. 1992) (“The delegation of authority down the chain of command, from the Secretary to the Commissioner of Internal Revenue, to local IRS employees constitutes a valid delegation by the Secretary to the Commissioner, and a redelegation by the Commissioner to the delegated officers and employees.”); Herip v. United States, 106 Fed. Appx. 995, 999, 2004 WL 1987302, at *4 (6th Cir. 2004); Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990); Lemieux v. United States, 230 F. Supp. 2d 1143, 1146 n.3 (D. Nev. 2002); Nestor v. Comm’r, 118 T.C. 162, 165-66.

Tax protesters who have simply demanded proof of delegation orders have often been rebuffed with decisions holding that the IRS is not required to provide proof of proper delegation. For example, appeals officers conducting collection due process hearings are not required to provide taxpayers with copies of any delegation orders. Borchardt v. Commissioner of Internal Revenue, 338 F. Supp. 2d 1040, 1043-44 (D. Minn. 2004). See also, Rennie v. Internal Revenue Service, 216 F.Supp.2d 1078, 1082 (E.D.Ca. 2002) (“There is no requirement that the IRS produce ‘evidence of any delegated authority from the Secretary of the Treasury’ or evidence of ‘internal delegations of administrative authority.’”).

Furthermore, delegation orders are among the internal procedures that the courts have held do not grant any rights to taxpayers. See Smith v. United States, 478 F.2d 398, 400 (5th Cir. 1973); Tavano v. Comm’r, 986 F.2d 1389, 1390 (11th Cir. 1993).

In addition, most notices require no signature at all. For example, a notice of deficiency need not be signed in order to be valid. Brafman v. United States, 384 F.2d 863, 865 n.4 (5th Cir. 1967); Pendola v. Commissioner, 50 T.C. 509, 513-514 (1968); Fox v. Commissioner, T.C. Memo. 1993-277 n.4, aff’d. without published opinion 69 F.3d 543 (9th Cir. 1995); Elmore v. Commissioner, T.C. Memo. 2003-123 (same for notice of determination to proceed with levy). And a notice of deficiency is not invalid merely because it bears a stamped signature. Urban v. Commissioner, 964 F.2d 888 (9th Cir. 1992), aff’ng per curiam T.C. Memo. 1991-220; Commissioner v. Oswego Falls Corp., 71 F.2d 673 (2d Cir. 1934), aff’ng 26 B.T.A. 60 (1932).

Finally, tax protesters sometimes claim that a “pocket commission” is required of IRS employees. But a pocket commission is only issued to certain IRS employees charged with enforcement activities outside of IRS offices, such as physical seizures of property or criminal investigations. See I.R.M. § 1.16.6.1 (07-01-2003). Once again, this is an internal IRS policy and there is no legal obligation for an IRS employee to have a pocket commission or to produce a pocket commission for inspection by a taxpayer in a collection due process hearing or other routine IRS activities.

“Frese’s requests for other documentation are meritless because the IRS has no duty to produce such materials. In particular, the illegitimate requests include demands for oaths of office, pocket commissions, job descriptions, delegation orders and authorizations, Treasury regulations, and statutes relating to the underlying tax and penalty.”

Dale Frese v. United States, 2006 TNT 53-21, No. 05-1741 (U.S.D.C. D.N.J. 1/30/2006) (dismissing objections to collection due process hearing and allowing IRS to proceed with collection of $500 frivolous return penalty). See also, Gunselman v. Commissioner, T.C. Memo 2003-11.

The claims that:

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.

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The notices issued by the IRS are invalid because they are not signed under penalties of perjury as required by I.R.C. section 6065.

Section 6065 requires taxpayers to file returns that are signed under penalties of perjury, but it says nothing about notices and determinations made by the IRS. This is therefore another example of wishful thinking by tax protesters desperate to find some technicality to absolve them of their tax liabilities.

The text of section 6065 is as follows:

“Except as otherwise provided by the Secretary, any return, declaration, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under the penalties of perjury.”

The courts have been unanimous in concluding that the words “required to be made” limit the application of the section to tax returns and other documents that taxpayers are required to file. For example:

“The Cermaks’ third argument is that the [administrative] summons Knapp issued was invalid because it was not signed under the penalties of perjury, as required by 26 U.S.C. section 6065. Section 6065 states: [Text of section 6065 omitted] The Cermaks would have us read out of section 6065 the phrase “required to be made” and thereby apply that section to any document made under any provision of the internal revenue laws. This we cannot do. Congress limited the applicability of section 6065 to only those documents “required to be made” under the internal revenue laws, and we must give effect to Congress’s intent. The phrase “required to be made” limits the applicability of section 6065 to documents that must be filed with the IRS, and not documents issued by the IRS. [Citation omitted] The Internal Revenue Code does not require the IRS to issue any summonses at all; it merely authorizes the IRS to do so. Accordingly, a summons under section 7602 is not a document “required to be made” under the Internal Revenue Code, and hence, section 6065 is not applicable to this case. [Footnote omitted]”

Cermak v. United States, 79 AFTR2d P97-1052, 97 TNT 121-44, KTC 1997-584, No. 96-2933 (7th Cir. 1997).

“Courts have held that section 6065 does not apply to notices issued by the Commissioner; its requirements are directed at documents that are originated by the taxpayer. [Citation omitted] We hold that section 6065 does not require an Appeals officer to sign a notice of determination under penalties of perjury.”

Davis v. Commissioner, 115 T.C. 35, 42 (2000).

“Petitioners’ first allegation of error is that the notice of deficiency they received for 1996 and 1997 was invalid because it was not issued in compliance with section 6065, which generally provides that documents or statements required to be made under the internal revenue laws must be subscribed under penalties of perjury. Petitioners’ argument is without merit. The requirements of section 6065 are directed at documents originating with the taxpayer, not respondent. [Citation omitted] Therefore, respondent’s failure to sign the notice of deficiency under penalties of perjury does not invalidate it.”

Milam v. Commissioner, T.C. Memo 2004-94.

“The debtor also argues that 26 U.S.C. section 6065 requires that the Proof [of claim in bankruptcy] be under penalty of perjury. .... This section [6065] is intended to require taxpayers, not the IRS, to make returns under penalties of perjury.”

In re Vines, KTC 1996-414, No. 96-932-CIV-T-17A (M.D.Fla. 9/27/1996)

“Craig claims that the notices of intent to levy are unlawful because they were not verified by a written declaration made under penalty of perjury, as required by 26 U.S.C. Section 6065. ... Section 6065 does not govern the form and content of the notice of levy, or any other document issued by the Secretary or his delegates, but rather deals with verification of returns made by taxpayers. It appears in the Internal Revenue Code as part of Part IV (Signing and Verifying of Returns and Other Documents) of Chapter 61 (Information and Returns). It plainly refers to the signing of returns and other documents by taxpayers.”

Craig v. Lowe, KTC 1996-286, No. C-95-3006 (U.S.D.C. N.D.Cal. 3/7/1996).

“Section 6065 was enacted to permit the taxpayer to submit a verified return rather than a notarized return, [citation omitted], and does not apply to notices issued by IRS agents. [Footnote omitted]”

Morelli v. Alexander, KTC 1996-123, No. 95 CIV 7057 (BDP) (S.D.N.Y. 4/4/1996).

“Plaintiff next alleges that the IRS’s “Notice of Federal Tax Lien” and “Notice of Intent to Levy” were illegal and/or invalid because they were not properly verified in compliance with either 26 U.S.C. section 6065 or 28 U.S.C. section 1746. (See Pl.’s Mem. in Support of Complaint at paragraphs 3-4.) Plaintiff maintains that, because the Defendants’ collection activities were not in strict accordance with the law, they constituted a taking of property without due process of law. (Id. at paragraphs 6-7.) Neither section 6065 nor section 1746, however, apply to an IRS notice of tax lien or an IRS notice of intent to levy [Footnote omitted] and, hence, there is no requirement that those documents be verified in accordance with either of those provisions.”

Wheeler v. O’Hanlon, KTC 1995-619, No. 95-60 ERIE (W.D.Pa. 10/31/1995).

“Morton also argues that 26 U.S.C. section 6065 requires the IRS to sign every document under penalty of perjury. Section 6065 states; [Text of section 6065 omitted]. Morton incorrectly interprets the implication of this section. Section 6065 deals with the verification of returns made by taxpayers. Congress enacted this section, along with sections 6061 and 6064, to simplify the task of both the taxpayer and Internal Revenue Service by permitting a verified return to be substituted for a notarized return in certain situations. [Citation omitted] Thus, Section 6065 does not require that notices issued by the Internal Revenue Service bear the signature of the district director or other official.”

Alaska Computer Brokers v. Morton, KTC 1995-409, n. 8, 76 A.F.T.R. 2d 95-6458, 95-2 USTC P50,510, No. A95-106 CV (JWS) (U.S.D.C. Alaska 9/6/1995).

See also, Larrew v. United States, KTC 2001-293 (N.D.Tex. 2001) (“Section 6065 does not apply to notices issued by IRS agents” and so does not apply to a notice of federal tax lien); Stone v. Commissioner, T.C. Memo. 1998-314 (stating that section 6065 applies to returns and other documents filed with the Commissioner but does not apply to notices of deficiency); Cohen v. United States, 201 F.2d 386 (9th Cir.), cert. denied, 345 U.S. 951 (1953); Pursell v. United States, 1995 WL 273175 at *6 (E.D. Cal. 1995); Mueller v. Esselstrom, 1995 WL 462219 at *2-3 (C.D. Cal. 1995); In re White, 168 B.R. 825, 833 (Bankr. D. Conn. 1994).

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If I do not file a return, then the Internal Revenue Service cannot assess a deficiency without first preparing a “substitute for return” in accordance with I.R.C. section 6020(b).

This is another example of tax protesters believing what they want to believe, and seizing on nonsensical readings of the Internal Revenue Code to try to throw up procedural roadblocks to the assessment and collection of taxes.

In this case, tax protesters want to believe that, if they don’t file a return, the IRS has to prepare and sign a tax return for them before the IRS can assess a tax deficiency. This is usually based on the provisions of section 6020(b), which reads as follows:

“(b) Execution of Return by Secretary. --

“(1) Authority of secretary to execute return. -- If any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise.

“(2) Status of returns. -- Any return so made and subscribed by the Secretary shall be prima facie good and sufficient for all legal purposes.”

The purpose and effect of the this provision will be explained below, but the most important point is that this section is entirely separate from the section on the assessment of deficiencies. The statutory definition of assessment, and the method of assessment, says nothing about any requirement for a signed return:

“Section 6203. Method of Assessment

“The assessment shall be made by recording the liability of the taxpayer in the office of the Secretary in accordance with rules or regulations prescribed by the Secretary. Upon request of the taxpayer, the Secretary shall furnish the taxpayer a copy of the record of the assessment.”

It is the practice of the IRS to prepare a “substitute for return” (or “SFR”) to calculate the tax liability of a taxpayer when the taxpayer fails to file a return, and then to assess the tax calculated on the SFR, and the courts have uniformly approved this procedure regardless of whether or not the the SFR is executed in accordance with section 6020(b). For example:

“Plaintiffs contend that the Service cannot impose liens against them because no properly executed return exists for them for the years in question because they did not file returns and the Service’s SFR was not signed by anyone from the Service. Plaintiffs assert that the IRS’s SFR was not signed and, therefore, cannot be ‘prima facie good and sufficient for all legal purposes.’ This assertion, however, is irrelevant in determining whether the IRS violated I.R.C. section 7341 because plaintiffs have not shown that the IRS requires a ‘properly executed return’ to assess taxes.

“An SFR is not an assessment. Under the regulations, the district director or other IRS employee may prepare a return for a taxpayer who is required to prepare a return but fails to do so, provided that the taxpayer consents to disclose all necessary information. 26 C.F.R. section 301.6020-1(a)(1) (1989). Additionally, the director must make a return, from his or her own knowledge and other means, for a taxpayer that fails to file a return within the specified time. Id. section 301.6020-1(b). The execution of an SFR under section 6020(b), however, does not start the three year limitation for the IRS to assess taxes after filing of the taxpayer’s return. See id. section 301.6501(b)-1. The regulations clearly contemplate, therefore, that the SFR and the assessment of taxes are separate events. The SFR is the calculation of any amounts due and owing; an assessment is a prescribed procedure for officially recording the fact and the amount of a taxpayer’s administratively determined tax liability, with consequences somewhat similar to reduction of a claim to judgment. Cohen v. Gross, 316 F.2d 521, 522-23 (3d Cir. 1961).

“Section 6020 of the Code provides that a signed SFR is prima facie good and sufficient for all legal purposes; it does not establish the legal significance of an unsigned SFR. Although the assessment must be signed by the appropriate officer under 26 C.F.R. section 301.6203-1, there is no parallel requirement that the SFR be signed. Thus, the unsigned SFR does not invalidate the assessment, which presumably was signed in the regular course of the IRS’s procedures.”

Christensen v. United States, KTC 1990-142, No. CA 88-5075 (SSB) (U.S.D.C. D.N.J. 3/19/1990).

“When a taxpayer fails to file a return and then refuses to provide relevant information to the IRS, the agency faces a difficult task in determining, assessing, and collecting whatever tax may be owed. It is not compelled to file a substitute return to trigger the assessment process. ... But a substitute return provides a valid statutory basis for an assessment, and an assessment gives the taxpayer notice of the IRS’s position and an opportunity to contest the assessed deficiency by administrative appeal and civil deficiency or refund litigation.”

United States v. Silkman, 220 F.3d 935 (8th Cir. 07/19/2000)

See also, United States v. Ahrens, 530 F.2d 781, 785 (8th Cir. 1976); Murray v. United States, 300 F.2d 804, 806 (1st Cir.), on remand 209 F. Supp. 883 (D. Mass. 1962), aff’d, 316 F.2d 29 (1st Cir. 1963); Donovan v. Maisel, 559 F. Supp. 171, 173 (D. Del. 1982); Geiselman v. United States, 961 F.2d 1, 5 (1st Cir.), cert. denied, 506 U.S. 891 (1992).

Reading section 6020(b) literally, to require the preparation and execution of a return which would then be “good and sufficient for all legal purposes,” would work to the disadvantage of taxpayers, because it would completely by-pass the due process protection of the deficiency procedures. If a properly executed income tax return were really prima facie good and sufficient for all legal purposes, the IRS could assess the tax shown on it without having to use deficiency procedures. For that reason, the IRS does not ordinarily use section 6020(b) for income tax returns, but uses it primarily for the employment tax liabilities of employers because an employment tax assessment does not require the notice of deficiency required for income tax returns (and certain other kinds of taxes). See I.R.C. Section 6212.

The claims that “[a] tax assessment is invalid because the assessment was made from a section 6020(b) substitute for return, which is not a valid return” and that, “[b]ecause filing a tax return is not required by law, the Service must prepare a return for a taxpayer who does not file one in order to assess and collect tax” 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.

Tax Protester “Evidence”

Some tax protesters think that the decision of the Tax Court in Cabirac v. Commissioner, 120 T.C. 163 (2003), supports their position, but it does not. In that case, the Tax Court held that a “substitute for return” (or “SFR”) was a valid method of determining a deficiency, and the Tax Court upheld the deficiency determined by the IRS, even though the SFR did not comply with I.R.C. Section 6020(b).

However, as part of the same decision, the court also held that the “return” in question that was presented by the IRS did not comply with section 6020(b), and so it could not be used as the basis for a penalty under section 6651(a)(2), which imposes a failure to pay penalty on “the amount shown as tax on any return” that is filed late. The effect of this ruling is that the IRS does not need to comply with section 6020(b) to assess a tax, but if the IRS wishes to assess a penalty under section 6651(a)(2) and the taxpayer has not filed a return, the IRS must first prepare a return for the taxpayer in accordance with section 6020(b).

Following the Cabirac ruling, the IRS issued new proposed regulations under section 6020(b) to clarify what is a “return” under that section, and to simplify the preparation of those returns. REG-131793-03; 70 F.R. 41165, 2005 TNT 136-6 (7/18/2005).

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I have revoked my consent to be a taxpayer.

The flip side of the claim that “the income tax is voluntary” is the claim that you can “unvolunteer” from the tax system.

Needless to say, the courts have not been impressed.

“Sasscer contends nevertheless that he is a ‘non-taxpayer’ due to his decision to rescind and revoke his consent to taxpayer status. Specifically, he refers to a letter and affidavit filed with the IRS on April 13, 1985. In the letter, Sasscer proclaims that he is a ‘freeman, a free sovereign individual.’ The attached Affidavit of Revocation and Recission declares that Sasscer is not ‘and never was a “taxpayer” as that term is defined in the Internal Revenue Code, a “person liable” for any Internal Revenue tax, or a “person” subject to the provisions of that Code.’ This well-worn argument has been uniformly repudiated by the federal courts. 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).

A somewhat similar argument is that taxpayers can refuse the pay Social Security taxes if they have waived the right to receive Social Security benefits. This argument was rejected in Crouch v. Commissioner, T.C. Memo. 1990-309, and Derksen v. Commissioner, 84 T.C. 355, 360 (1985). In Rev. Rul. 2005-17, 2005-14 I.R.B. 823, the IRS ruled that the argument is “frivolous” and can result in civil and criminal penalties.

See also, Lesoon v. Commissioner of Internal Revenue, 141 F.3d 1185, 1998 WL 166114 (10th Cir. 1998); United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993); Damron v. Yellow Freight System, Inc., 18 F. Supp. 2d 812, 819-20 (E.D. Tenn. 1998), aff’d, 188 F.3d 506 (6th Cir. 1999).

The claim that “[a] taxpayer may ‘untax’ himself or herself at any time or revoke the consent to be taxed and thereafter not be subject to internal revenue taxes” 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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I have a letter from the IRS saying that I am not required to file an income tax return.

An example of “garbage in, garbage out.” If you write to the IRS and say that you are a non-resident alien with no taxable income, the IRS will write back and say that you are not required to file a tax return. It means nothing, because you have lied to the IRS.

Now, if you wrote to the IRS and said that you were a citizen of Montana with $50,000 of wages received in the past year, and the IRS said that you were not required to file a tax return, that would be interesting. But the IRS has never sent anyone any such letter.

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I am not required to file a tax return because I wrote a letter to the IRS demanding to know where in the Internal Revenue Code it says I am required to file and the IRS has failed to respond.

The IRS is not required to respond to every kook or misfit looking for an argument.

If you have a serious question about the tax laws, you can call or write to the IRS and they will try to give you some guidance. If you want to play 20 questions and try to “trap” the IRS into making some kind of statement that you can later try to use against it, you’re wasting your time (and theirs).

Demand letters only work when there is a legal right to make the demand. If I am owed a debt, I have a right to demand payment. If I make a demand for payment, and receive no payment, I have the right to sue. However, if there is no valid debt, then sending a demand letter is meaningless, because there is no legal obligation to respond to a demand for a debt which doesn’t exist.

Same thing with the IRS. There are statutes that give people the right to make demands on the IRS under certain circumstances. For example, section 6905 of the Internal Revenue Code gives the executor of an estate the right to demand that the IRS determine what income taxes might have been owed by the decedent within nine months of the notice. If the IRS fails to respond within nine months, the executor can distribute the decedent’s estate without any personal liability for any income taxes that might be owed.

BUT!!!!!

There is nothing in the Internal Revenue Code, no statute of the United States, and no court decision in the history of the United States that requires the IRS to respond to the demands of taxpayers wanting to know why they are legally required to pay income taxes. If the IRS fails to respond to those kinds of letters, it means absolutely nothing.

As one court explained:

“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, 2006 TNT 51-17, No. 05-cv-02245-ADS-WDW (U.S.D.C. E.D. N.Y. 1/28/2006), aff’d sub nom. United States v. Astrup, 2006 TNT 118-16, No. 05-5701-cv (2nd Cir. 6/14/2006).

Another court rejected this kind of claim (after dismissing a “hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish”) as follows:

“Finally, petitioner contends that her attempts to secure explanations from the IRS about her arguments were reasonable cause for her failure to file returns for the years in issue. They were not. Petitioner apparently did not consult with an attorney or accountant or any competent tax professional before discontinuing her prior history of filing returns. She cites innumerable cases out of context, while ignoring the innumerable cases upholding the validity of the Federal income tax and rejecting arguments by individuals that they are not required to file Federal income tax returns and pay Federal income taxes. Her failure to file returns for the years in issue was not due to reasonable cause. She is liable for the addition to tax under section 6651(a) [for failure to file a return or pay any tax] as determined by respondent.”

Rogers v. Commissioner, T.C. Memo 2001-20 (1/30/2001).

In affirming negligence penalties and imposing sanctions, another court stated:

“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.’ [....]

“The Commissioner’s failure to respond to the tax return memorandum was not improper as the Commissioner has no obligation to respond to inquiries regarding the tax code.”

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).

However, according to newspaper accounts of a trial for criminal failure to file, a jury concluded that the defendant’s failure to file returns was not “willful” when the IRS failed to respond to her letters. Catts, Timothy, “Officials Call FedEx Pilot’s Case ‘Bad Example to Follow,’” 2003 TNT 158-2 (Aug. 14, 2003), describing the jury verdict in United States v. Kuglin, No. 03-20111 (U.S.D.C. W.D. Tenn. 8/8/2003). Trying to prove a lack of “willfulness” (aka the “Cheek defense”) in this way is risky and, as explained below, the jury verdict did not eliminate the defendant’s tax liabilities, so the best that can be said of this strategy is that it might keep you out of jail.

Tax protesters sometimes claim that the IRS should be “estopped” from assessing any taxes (or penalties) against them, but tax protesters don’t really understand the doctrine of estoppel. Equitable estoppel is a judicial doctrine created to prevent injustice, and the doctrine prevents a party from asserting a defense or claim against someone else if the other person has justifiably relied on statements (or actions) of the party. See, for example, Graff v. Commissioner, 74 T.C. 743, 761 (1980), aff’d. 673 F.2d 784 (5th Cir. 1982). However, estoppel is rarely applied against the IRS because it applies only if the taxpayer can establish all of the following elements: (1) There must be a false representation or wrongful misleading silence by the IRS (“wrongful” meaning that the IRS has a legal duty to respond, which as explained above is rarely true); (2) the error must be in a statement of fact and not in an opinion or a statement of law; (3) the person claiming the benefits of estoppel must be ignorant of the true facts; and (4) he must be adversely affected by the acts or statements of the person against whom an estoppel is claimed. Estate of Emerson v. Commissioner, 67 T.C. 612, 617-618 (1977); see also Lignos v. United States, 439 F.2d 1365, 1368 (2d Cir. 1971). It has therefore been held that there is no estoppel against the IRS unless the taxpayer has changed his position to his detriment, and there is no estoppel if the taxpayer simply owes the same tax that would have been owed even without the statement or silence by the IRS. See Reuben v. Commissioner, T.C. Memo. 2001-193.

The doctrine of equitable estoppel only applies to prevent what would otherwise be unjust harm to an innocent person, but tax protesters want to use the doctrine to enrich themselves and evade the taxes they would otherwise owe. No court has ever allowed such nonsense, and it’s safe to say that no court ever will.

The claim that “a person is not required to file a tax return or pay a tax unless the Internal Revenue Service responds to the person’s questions, correspondence, or a request to identify a provision in the Code requiring the filing of a return or the payment of 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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I can comply with the law, and avoid any tax liability, by filing a “zero return” along with a statement explaining why I am not liable for any income tax.

This was Irwin Schiff’s last scam and, like the “tax statement,” it required a complete ignorance of tax law to believe that it could possibly be valid.

The “zero return” is a return that reports no income and no tax. Schiff claimed that this return complies with filing requirements, but results in no tax liability.

The U.S. District Court for Nevada has preliminarily enjoined Schiff from preparing returns and promoting his tax schemes. United States v. Schiff, KTC 2003-238, No. CV-S-03-0281-LDG (RDF) (U.S.D.C. Nev. 6/16/2003), aff’d 379 F.3d 621, KTC 2004-224, No. 03-16319 (9th Cir. 8/9/2004), cert. den. No. 04-1383 (10/3/2005). In concluding that Schiff’s claims were not only false, but knowingly false, the District Court reviewed Schiff’s criminal convictions for tax crimes and his civil losses against the tax system, and then concluded:

“All of Schiff’s schemes suffer from the same conceptual infirmities, rejected time and time again by the courts: that income taxes are voluntary; that there is no legal obligation to pay income taxes; and that imposition of any income tax by Congress violates the taxing clauses of the Constitution. Only the approaches to avoiding the payment of income tax are different. Schiff cannot avoid the ‘know or had reason to know’ standard by holding up a differently wrapped package. Schiff knows what’s in the box, and therefore knows better.”

Preliminary Injunction, page 10. (The injunction is now somewhat academic, because Schiff was later convicted on related criminal charges, and is now in federal prison. United States v. Schiff, No. 2:2004cr00119 (U.S.D.C. D. Nev. 2/24/2006), on appeal, No. 06-10199 (9th Cir.).)

In upholding the preliminary injunction, the 9th Circuit Court of Appeals found that there was a “substantial likelihood” that the government would prevail, and that the injunction against the sale of Schiff’s book, The Federal Mafia, did not violate Schiff’s first amendment rights because the claims made by the book were fraudulent:

“For example, on the inside cover of The Federal Mafia, he [Schiff] informs readers that ‘no law requires you to file income tax returns or pay this tax.’ On the same page he further claims that ‘there are no criminal statutes that apply to income taxes . . . [a]nd there is no law giving federal courts authorization . . . to prosecute anyone for income tax “crimes”.’ Although these claims are far-fetched, they could mislead a customer into believing that he or she could use Schiff’s products to legally stop paying income taxes.”

U.S. v. Schiff, 379 F.3d 621, No. 03-16319, page 16 (9th Cir. 8/9/2004).

A student of Schiff’s has also been preliminarily enjoined from preparing tax returns, the court stating:

“Hubacek’s scheme to help his customers evade taxes uses the same frivolous theory that Irwin Schiff, a Las Vegas-based tax-scam promoter, created -- the ‘corporate profit’ theory. Schiff s theory rests on the premise that no section of the Internal Revenue Code establishes an income-tax liability on wages. ... This Court has held that the ‘corporate profit’ theory and its resulting zero-income returns are fraudulent and frivolous.” U.S. v. Hubacek, 2004 TNT 1-19, No. CV-S-03-1523(U.S.D.C Nev. 12/23/2003).

There have also been a stream of cases coming out of Nevada (where Schiff has lived and promoted his frauds) involving returns with zero income reported. Needless to say, the taxpayers have been losing all of these cases.

For cases in which the taxpayer filed a “zero return,” the IRS assessed a frivolous return penalty of $500, and the court affirmed the penalty and allowed the IRS to proceed to collect the penalty by levy, see:

In each of the above cases, the court reviewed the return in question and granted summary judgment to the United States, finding that the return was “frivolous” as a matter of law.

See also, Sisemore v. United States, 797 F.2d 268, 270 (6th Cir. 1986); Newman v. Commissioner, 83 T.C.M. (CCH) 1757 (2002); Samlaska v. United States, No. CV-S-01-1237-KJD (PAL) (U.S.D.C. Nev. 7/31/2002); Carini v. United States, No. CV-S-02-0169-KJD (RJJ) (U.S.D.C. Nev. 12/2/2002); Wahl v. United States>, No. CV-S-02-0239-KJD (RJJ) (U.S.D.C. Nev. 1/31/2003); Ordunez v. United States, No. CV-S-02-0033-KJD (LRL) (U.S.D.C. Nev. 2/3/2003); Caldwell v. United States, CV-S-02-0045-KJD (PAL) (U.S.D.C. Nev. 2/5/2003); Gaasbeck v. United States, 2004 TNT 69-10, No. CV-S-03-0089-KJD (LRL) (D.C. Nev. 1/29/2004), (court would have “freely granted” Rule 11 sanctions if requested).

For cases in which a Nevada taxpayer filed a “zero return,” the IRS assessed a deficiency based on income information from Forms W-2, 1099, and other third-party reports, and the Tax Court allowed the IRS to proceed with collection by levy, see:

Wagner, Davidson, Land, Davich, Schmith, Villwock, Kiley, Koening, Smith, Copeland, Flathers, and Fink all attached statements to their income tax returns explaining why they were not subject to tax, and the wording of the statements were essentially identical. The courts in Swann, Stoewer, Lyman, Cortes, Williams, Frank, Duncan, and Brashear noted that the attachments to the income tax returns of those taxpayers, as well as letters and other documents sent to the IRS, were similar to the attachments, letters, and other documents used by the taxpayers in Copeland and Smith. (The attachment quoted in the Keene case is somewhat different from the others, and the court opinions in the other cases do not quote from the attachments.) The similar wording suggests that they all got their instructions from the same source (i.e., Irwin Schiff).

The Ninth Circuit has affirmed, and the Supreme Court has denied certiorari, in a “zero return” case arising in California. The two-page attachment the returns in in question included the following statement:

“It should also be noted that I had ‘zero’ income according to the Supreme Court’s definition of income (See note#1), since in Merchant’s Loan & Trust Co.v. Smietanka, 225 U.S. 509, (at pages 518&519) that Court held that ‘The word (income) must be given the same meaning in all of the income tax acts of Congress that was given to it in the Corporation Excise Tax Act (1909).’ Therefore, since I had no earnings in any year that would have been taxable under the Corporation Excise Tax Act of 1909 as ‘income,’ I can only swear to having “zero” income in 1995.* * *”

Schroeder v. Commissioner, T.C. Memo 2002-211, (deficiencies affirmed for 1995 and 1996, as well as a penalty for substantial understatement for 1996), aff’d 2003 TNT 107-4, No. 02-73929 (9th Cir. 5/20/2003), (unpublished), cert. den. ___ U.S. ___, No. 03-1096 (3/1/2004).

This statement appears to be identical to the statements filed by other purchasers of the “zero return” sold by Irwin Schiff.

For other cases in which taxpayers filing “zero returns” have failed in their challenges to frivolous return penalties, see:

Loze v. United States, No. CIV A 02- 1721, 2003 WL 1547283 (E.D. La. Feb. 13, 2003), (granting U.S. motion for summary judgment); Gregory v. United States, No. CIV A1:02-CV-889-CC, 2003 WL 701218 (N.D. Ga. Jan. 15, 2003), (granting U.S. motion to dismiss or for summary judgment); Tornichio v. United States, 263 F. Supp. 2d 1090, 1097 (N.D. Ohio 2002), (granting U.S. motion to dismiss and noting that “[c]ourts have also consistently found identical arguments to the ones here to be frivolous”) (citations omitted); Carroll v. United States, 217 F. Supp. 2d 852, 858 (W.D. Tenn. 2002), (granting U.S. motion for summary judgment and awarding defendant fees and costs, due to “the frivolous nature of plaintiff’s arguments”); Kelly v. United States, 209 F. Supp. 2d 981 (E.D. Mo. 2002), (granting U.S. motion for summary judgment); Rennie v. IRS, 216 F. Supp. 2d 1078 (E.D. Cal. 2002), (granting U.S. motion to dismiss or for summary judgment); Cole v. United States, No. 1:02-CV-137, 2002 WL 31495841 (W.D. Mich. Oct. 21, 2002), (granting U.S. motion for summary judgment); Bentley v. IRS, No. 4:02 CV 1391, 2002 WL 31274045 (N.D. Ohio Sept. 10, 2002), (dismissing plaintiff’s claim sua sponte); Goodell v. United States, No. 03-118-M, Opinion No. 2003 DNH 174 (U.S.D.C. N.H. 10/14/2003); Schultz v. United States, 2005 TNT 85-8, No. 4:04-cv-92 (U.S.D.C. W.D.Mich. 3/23/2005); Gillett v. United States, 233 F. Supp. 2d 874 (W.D. Mich. 2002) (“Numerous federal courts have upheld the imposition of the $500 sanction by the IRS pursuant to 26 U.S.C. section 6702(a), where, as here, a tax form is filed stating that an individual had no income, but the attached W-2 forms show wages, tips, or other compensation of greater than zero.”).

See also, Kelly v. United States, 789 F.2d 94, 97 (1st Cir. 1986); Davis v. United States Government, 742 F.2d 171, 173 (5th Cir. 1984); Yuen v. United States, 5 Supp.2d 1220, 1224 (D. Nev. 2003); Hill v. Commissioner, T.C. Memo. 2003-144 (imposing $15,000 penalty under section 6673 for frivolous “zero return” position); Rayner v. Commissioner, T.C. Memo. 2002-30 (imposing $5,000 penalty under section 6673 for frivolous “zero return” position).

So, for all would-be suckers who thought about giving money to Irwin Schiff, this is a sample of the nonsense you would have paid for:

I [...] am submitting this as part of my [...] income tax return even though I know that no section of the Internal Revenue Code:
1) Establishes an income tax “liability” [...];[Which is wrong.]
2) Provides that income taxes “have to be paid on the basis of a return” [...];[Which is wrong.]
3) In addition to the above, I am filing even though the “privacy Act Notice” as contained in a 1040 booklet clearly informs me that I am not required to file. It does so in at least two places.
a) In one place, it states that I need only file a return for “any tax” I may be “liable” for. Since no Code Section makes be “liable” for income taxes, this provision notifies me that I do not have to file an income tax return.[Which is wrong.]
[...]
7) Please note, that my [...] return also constitutes a claim for refund pursuant to Code Section 6402.
8) It should also be noted that I had “zero” income according to the Supreme Court’s definition of income [...}.[Which is wrong.]
9 I am also putting the IRS on notice that my 1997 tax return and claim for refund does not constitute a “frivolous” return pursuant to Code Section 6702.[Which is wrong, as shown above.]
[...]
11) In addition, don’t notify me, that the IRS is “changing” my return, since there is no statute that allows the IRS to do that. You might prepare a return (pursuant to Code Section 6020(a), where no return is filed, but where, as in this case, a return has been filed, no statute authorizes IRS personnel to “change” that return.[Which is also wrong.]
[...]
*NOTE #1: The word “income” is not defined in the Internal Revenue Code [...] but, as stated above, it can only be a derivative of corporate activity.[Which is wrong.]

All Schiff is selling is “a vehicle to protest the tax laws of this country and to espouse his own misguided views, which we regard as frivolous and groundless.” Wagner, supra; Davidson, supra; Land, supra; Davich, supra; Schmith, supra; and Villwock, supra.

Needless to say, the IRS considers the “zero return” to be frivolous and has ruled that zero returns can result in civil and criminal penalties. Rev. Rul. 2004-34, 2004-12 I.R.B. 619. The claim that “A taxpayer has an option under the law to ... elect to file a tax return reporting zero taxable income and zero tax liability even if the taxpayer received taxable income during the taxable period for which the return is filed, or similar arguments described as frivolous in Rev. Rul. 2004-34, 2004-12 I.R.B. 619,” has therefore 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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I can comply with the law, and avoid any tax liability, by filing a “tax statement” instead of a tax return.

There are a number of web sites that claim that, by filing a 52 page “statement” instead of a tax “return,” you won’t be liable for any tax and can’t be prosecuted for any crime.

It’s all nonsense.

The legal basis for the so-called “tax statement” supposedly lies in I.R.C. section 6011, which provides general guidelines for a “return or statement.” What the promoters of this particular scam seem to be able to overlook is the specific requirement, found in both the statute and the regulations, that a return or statement be made “according to the forms and regulations prescribed by the Secretary” (I.R.C. section 6011(a)) and “The return or statement shall include therein the information required by the applicable regulations or forms” (Treas. Reg. section 1.6011-1(a)).

Furthermore, section 6012 specifically requires an income tax “return” (not “statement”) by those persons having more than the required amount of income, and the regulations under section 6012 require the use of Form 1040 as the form of return.

The U.S. Supreme Court has held that certain documents drafted by taxpayers that do not comply with the forms prescribed by the Secretary will nevertheless be treated as valid returns for purposes of the statute of limitations if they contain certain elements. See Badaracco v. Commissioner, 464 U.S. 386 (1984); Commissioner v. Lane-Wells Co., 321 U.S. 219 (1944); Zellerbach Pager Co. v. Helvering, 293 U.S. 172 (1934); Lucas v. Pilliod Lumber Co., 281 U.S. 245 (1930); Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453 (1930). The Tax Court has summarized the requirements of the Supreme Court as follows:

“First, there must be sufficient data to calculate [the] tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.”

Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d 793 F.2d 139 (6th Cir. 1986).

If those requirements are not met, then no return has been filed, and the taxpayer can be subjected to civil and criminal penalties for failure to file. For example, in Williams v. Commissioner, 114 T.C. 136 (2000), the taxpayer filed a Form 1040 which correctly reported his income, and which he signed, but put an asterisk by the amount of tax due and wrote at the bottom of the page “The admitted liability is zero. See attached Disclaimer Statement.” The attached “disclaimer statement” read in part:

“The above named taxpayer respectfully declines to volunteer concerning assessment and payment of any tax balance due on the return or any redetermination of said tax. Be it known that the above said taxpayer, therefore, denies tax liability and does not admit that the stated amount of tax on return is due and collectible. ...”

The Tax Court held that the form was not a “return” because the disclaimer “negated the meaning of the jurat.” (The “jurat” is the statement that the return is true and correct and signed under penalties of perjury). The court therefore held that the taxpayer was subject to additions to tax for failure to file a return, and also assessed sanctions of $5,000 for frivolous court proceedings.

The promoters of “tax statements” seem to believe that their filings will avoid both income taxes and the civil and criminal penalties for failure to file, but the statute, regulations, and court decisions don’t admit of such a possibility. If it is a “return,” then it must contain enough information to calculate a tax liability, and it must be an honest and reasonable attempt to comply with the law. If it is not a “return,” then it is nothing but a waste of time.

The claim that “A taxpayer has an option under the law to file a document or set of documents in lieu of a return ..., or similar arguments described as frivolous in Rev. Rul. 2004-34, 2004-12 I.R.B. 619,” has therefore 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 IRS cannot levy on property or file a lien on property without first obtaining a judgment or order of a court.

As noted above, constitutional due process requires only that a person receive notice and an opportunity to be heard before an impartial trier of fact, and a notice of deficiency and an opportunity to petition the Tax Court satisfies the constitutional due process that is required before a tax deficiency may be assessed. So, once a tax is assessed, the government can proceed to collect it without further judicial proceedings, just as a judgment creditor can proceed to collect a default judgment through Sheriff’s sales and other legal processes.

This has been confirmed by the Supreme Court:

“The assessment [of tax] is given the force of a judgment, and if the amount assessed is not paid when due, administrative officials may seize the debtor’s property to satisfy the debt.”

Bull v. United States, 295 U.S. 247, 260 (1935).

“Administrative levy [described in 26 U.S.C. section 6331(a)], unlike an ordinary lawsuit, and unlike the procedure described in 7403, does not require any judicial intervention, and it is up to the taxpayer, if he so chooses, to go to court if he claims that the assessed amount was not legally owing.”

United States v. Rodgers, 461 U.S. 677, 682-683 (1983).

See also, United States v. Baggot, 463 U.S. 476, 481 (1983) (“The IRS’s decision [to assess and collect an income tax deficiency] is largely self-executing, in the sense that it has independent legal force of its own, without requiring prior validation or enforcement by a court. The IRS need never go into court to assess and collect the amount owed; it is empowered to collect the tax by nonjudicial means (such as levy on property or salary, 26 U.S.C. 6331, 6332), without having to prove to a court the validity of the underlying tax liability.”)

This has been confirmed by the lower courts as well:

“[T]he Internal Revenue Code grants the IRS the power to levy without court authorization. 26 U.S.C. section 6331(a).”

Barnard v. Pavlish, 81 AFTR2d ¶98-635, 98 TNT 80-64, 1998 WL 247768 at *2, No. 97-CV-0236 (U.S.D.C. M.D. Pa. 3/30/1998), aff’d, 187 F.3d 625 (3d Cir. 1999).

“This court has held that the IRS is authorized to collect taxes by either levy OR court proceeding.”

Maisano v. Welcher, 940 F.2d 499, 501 (9th Cir. 1991), cert. denied, 504 U.S. 916 (1992).

“Neither court proceedings nor legal review is required before levy.”

Ramos v. First Hawaiian Bank, 80 AFTR2d ¶97-5392, 97 TNT 189-17, 1997 WL 720826 at *2, No. 97-704 (U.S.D.C. D. Haw. 9/15/1997).

The plaintiffs’ premise for their complaint is that the IRS agents were required to have a court order in order to be able to legally seize property for delinquent taxes. Unfortunately, this is a faulty premise. Title 26 U.S.C. §6331 authorizes the IRS to seize property of any person liable for any tax upon ten days notice. The plaintiffs are incorrect in stating that §§6331 and 6321 only apply to the Bureau of Alcohol, Tobacco and Firearms. The statute specifically states that any person may have their property levied upon. 26 U.S.C. §§6331(a) and 6321. The plaintiffs also cite 26 U.S.C. §7402 which grants jurisdiction to the district courts to issue orders, processes and judgments as well as enforce IRS summons. This section does not require a court order in order to levy on property under §6331.

Brian v. Gugin, 853 F.Supp. 358, 94-1 U.S. Tax Cas. (CCH) ¶50,278, 73 AFTR2d 94-637, 94 TNT 45-22 (D. Idaho 1994), aff’d, 95-1 U.S. Tax Cas. (CCH) ¶50,067, 75 AFTR2d ¶95-460, 95 TNT 27-27 (9th Cir. 1995) (action against IRS agents for seizing car in driveway dismissed). In a later action by the same plaintiffs against the same defendants, the court dismissed the action and awarded sanctions of $750 against the plaintiffs for filing a frivolous complaint, but denied imposing legal fees. Ralph Brian, et ux. et al. v. Phylis J. Gugin, et al., 77 AFTR2d ¶96-505, 96 TNT 41-30, No. CV 94-0133 (D. Idaho 2/6/1996).

See also, Vote v. United States, 753 F. Supp. 866, 870 (D. Nev. 1990) (noting that section 1331 did not require judicial approval for a levy), aff’d 930 F.2d 31 (9th Cir. 1991), Towe Antique Ford Found. v. IRS, 999 F.2d 1387, 1394 (9th Cir. 1993) (no judicial hearing is required before taking property subject to levy).

Similarly, the IRS has the power to file notices of lien without a court order.

“Contrary to Mr. Kyler’s assertion, no federal authority stands for the proposition that for a federal tax lien to be valid, there must be a federal court order signed by a federal judge. Rather, 26 U.S.C. §§ 6321 and 6322 establish that a lien automatically arises upon assessment of a tax and continues until the taxpayer’s liability is satisfied or becomes unenforceable.”

Kyler v. Everson, 2006 TNT 65-12, No. 05-5185 (10th Cir. 4/3/2006).

Tax Protester “Evidence”

Tax protesters have claimed that the literal language of 26 U.S.C. § 6332(c) requires a court order because that section states that “Any bank … shall surrender (subject to an attachment or execution under judicial process) any deposits (including interest thereon) in such bank only after 21 days after service of levy.” The claim is that the phrase “(subject to an attachment or execution under judicial process)” means that a bank can honor a levy only if the funds are already subject to a judicial attachment or execution. But such an interpretation would render the levy process redundant and superfluous because, if a levy can apply only to property already attached, what function would the levy serve? Section 6332(c) must be read as similar to section 6332(a), which exempts from levy “such part of the property or rights as is, at the time of such demand [to surrender], subject to an attachment or execution under any judicial process.” The courts have uniformly understood this exception to apply to property that has been attached by another creditor. If a creditor other than the IRS is able to attach property before the IRS has served its notice of levy, then the attachment of the other creditor may be senior to the levy by the IRS and the person receiving the notice of levy is not required to surrender the property to the IRS. See, for example, In re Larsen, 232 B.R. 482, 484 (Bkrtcy. D. Wyo. 1998) (Section 6332(c) “protects judgment creditors with priority over the IRS lien, but has no significance with regard to the levy requirements of the service.”); Brown v. United States, No. 92-C-788, 1993 WL 643364, at *5 (D. Utah Nov. 5, 1993) (“Plaintiff has read § 6332(c) out of context and incorrectly interpreted it to require banks to wait for attachment and execution under judicial process prior to surrendering property in bank accounts.”); Claudia Lanier v. Wachovia Bank, No. 2:09-cv-4566-WY (U.S.D.C. E.D. Pa. 3/24/2010) (“The purpose of § 6322(c) is not to require the IRS to obtain a court order before a bank can comply with a levy. Rather, the purpose is to protect ‘judgment creditors with priority over the IRS lien.’”).

There are some older court decisions, decided under the Internal Revenue Code of 1939 (which was repealed when the Internal Revenue Code of 1954 was enacted), which refer to a “warrant of distraint.” See, for example, United States v. O’Dell, 160 F.2d 304, 307 (6th Cir. 1947), which is discussed in more detail below. Because “search warrants” must be issued by a court, tax protesters leap to the conclusion that a “warrant of distraint” must also be issued by a court but a “warrant” is simply a document granting authority to do something and not all kinds of warrants require court approval. In the case of “warrants for distraint,” section 3692 of the 1939 Code stated that “the collector may levy, or by warrant may authorize a deputy collector to levy, upon all property and rights to property....”). A “collector” is an employee of the IRS, and so collectors had the power to levy on property, or had the power to issue “warrants” to deputy collectors to levy on property. No court approval is needed for a collector to levy or issue a warrant for a levy.

Tax protesters have argued that notices of levies and liens without a court order can be ignored without any consequences, citing Schulz v. IRS, 413 F.3d 297, 301-02 (2d Cir. 2005). But the dispute in Schulz was over an administrative summons requesting information from a taxpayer, and not a levy or lien on property.

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A notice of lien is invalid unless the form and content of the notice complies with the state law for recording liens.

Another example of wishful thinking, and wrong on several levels.

As a matter of constitutional law, the validity and effect of federal liens are determined by federal law, and not state law. In United States v. Snyder, 149 U.S. 210, 214-215 (1893), the Supreme Court rejected the idea that the collection of federal taxes “can be thwarted by the plea of a state statute prescribing that such a tax must be assessed and recorded under state regulation” and held that “the tax system of the United States is regulated by the federal statutes and practice, and are not controlled by state enactments.”

Currently, I.R.C. section 6323(f)(3) provides that:

“The form and content of the notice [of federal tax lien] referred to in subsection (a) shall be prescribed by the Secretary. Such notice shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien.”

I.R.C. section 6323(f)(1)(A) allows each state to designate the place (i.e., the office) where notices of liens may be filed, and in the absence of any designation by the state, the notice of lien may be filed with the Clerk of the District Court for the state (or judicial district within the state) where the property is located.

In United States v. Union Central Life Ins. Co., 368 U.S. 291 (1961), a notice of federal tax lien had been filed with the Clerk of a District Court in Michigan, even though Michigan law required that notices of federal tax liens be filed with the county register of deeds, because the registers of deeds would not accept a federal notice that did not include a description of the property subject to the lien, as required by Michigan law. In a dispute between the United States and the holder of a mortgage filed after the notice of lien had been filed, the Supreme Court held that, because the recorder of deeds would not accept the notice of lien in the form allowed by federal law, Michigan had not validly designated a place for the filing of the notices of liens and the recording in the office Clerk of the District Court was proper.

Based on Supremecy Clause of the Constitution, and the statutes and Supreme Court decisions described above, arguments that a notice of federal tax lien did not comply with state law will always fail.

“[T]he Tempelmans contend that the notices of federal tax liens were never ‘certified’ by a Treasury official, as allegedly required by state law, and so were never properly filed. Various other courts have considered similar arguments and have been unpersuaded. [Citation omitted] Whatever the construction of the state law in question, ... the form of a federal-tax-lien notice is a matter of federal law to be ‘prescribed by the Secretary [of the Treasury].’ 26 U.S.C. section 6323(f)(3).”

United States v. Tempelman, 87 A.F.T.R.2d 2001-2619, KTC 2001-299 (1st Cir. 2001).

See also, United States v. Letscher, 83 F. Supp. 2d 367, 377-78, 84 AFTR2d Par. 99-5461, 1999 TNT 212-5 (S.D. N.Y. 1999); Bertelt v. United States (In re Bertelt), 206 B.R. 579 (Bankr. M.D. Fla. 1996).

Lawsuits against local officials for accepting notices of federal tax liens have also failed. See, e.g., Sollenberger v. Lee, KTC 2007-394, No. 82 C.D. 2007 (Comwlth. Pa. 6/8/2007).

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A “notice of levy” (or “notice of lien”) is not the same as an actual levy (or an actual lien).

This belief is based mostly on ignorance, but is also illustrative of the tendency of tax protesters to believe in the magic of words and labels.

What tax protesters fail to recognize is that there is a difference between a legal interest or relationship and the document that creates the interest or relationship. So, for an example, there is a difference between a promissory note and a debt, because the promissory note is a document and the debt is the legal relationship created (or evidenced) by the promissory note. Similarly, a deed can be used to transfer the ownership of property, but deeds (i.e., documents) and ownership (a legal interest) are two different things.

A “levy” is an act, not a document. As a verb, “levy” means to seize or collect. As a noun, a “levy” is the act of levying. You can’t “serve a levy” any more than you can “serve a debt” or “serve ownership.”

The regulations are clear that a “notice of levy” is the document by which the IRS seizes property of the taxpayer that is in the possession of a third party:

“Levy may be made by serving a notice of levy on any person in possession of, or obligated with respect to, property or rights to property subject to levy, including receivables, bank accounts, evidences of debt, securities, and salaries, wages, commissions, or other compensation.”

Treas. Reg. section 301.6331-1(a)(1).

And the Supreme Court has confirmed that a levy can be made by serving a notice of levy:

“Historically, service of notice has been sufficient to seize a debt, [citation omitted], and notice of levy and demand are equivalent to seizure.”

Phelps v. United States, 421 U.S. 330, 337 (1975).

“In the situation where a taxpayer’s property is held by another, a notice of levy upon the custodian is customarily served pursuant to section 6332(a). This notice gives the IRS the right to all property levied upon, [citation omitted] and creates a custodial relationship between the person holding the property and the IRS so that the property comes into the constructive possession of the Government.”)

National Bank of Commerce, 472 U.S. 713, 720 (1985).

“Appellant contends that the IRS, by using a ‘Notice of Levy’ form rather than a ‘Levy’ form, did not properly make a levy upon his property... This argument is absolutely meritless. Appellant ignores 26 U.S.C. § 6331(b), which states that ‘[t]he term “levy” ... includes the power of distraint and seizure by any means’ (emphasis added). It is well established that a ‘[l]evy on property in the hands of a third party is made by serving a notice of levy on the third party.’ [Citations to regulations, court decisions, and other authorities omitted.] Without exception the case law supports the use of a notice of levy.”

Schiff v. Simon & Schuster, Inc., 780 F.2d 210, 212 (2d Cir. 1985) (upholding levy on book royalties by serving notice of levy on publisher).

See also, St. Louis Union Trust Co. v. United States, 617 F.2d 1293, 1302 (8th Cir. 1980) (“The usual and recognized means of distraint and seizure of property is a notice of levy.”).

The same principles apply to liens and notices of lien. A “lien” is a legal interest in property, not a document. Federal tax liens are defined by statute, and they come into existence automatically, as soon as a tax is assessed and demand is made for payment:

“If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.”

I.R.C. section 6321.

The purpose of a “notice of lien” is not to create a lien, because the lien exists under section 6321 as soon as the IRS has made a demand for the tax due. The purpose of the notice is to make the lien enforceable against purchasers and certain other third parties who may also have interests in the property subject to the lien. This is spelled out in section 6323:

“The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary.”

I.R.C. section 6323(a).

The Internal Revenue Code, regulations, and Supreme Court decisions are therefore clear that a “notice of levy” is sufficient to make a levy, and that a “notice of lien” is sufficient to perfect a tax lien.

Tax Protester “Evidence”

Tax protesters often like to cite the decision in Williamson v. Boulder Dam Credit Union, No. 97A014 (Boulder Township Nev. Justice Court 5/18/1997), which is an unpublished decision of a small claims court, for the proposition that there is a difference between a notice of levy and an actual levy. The judge in that case apparently got confused by the difference between a “notice of intent to levy” (which 26 U.S.C. section 6331(d) requires that the IRS give to the taxpayer before making a levy) and a “notice of levy” (which is how a levy is made in accordance with 26 U.S.C. section 6331(a)). And tax protesters never admit that the case was reversed on appeal, No. 98-A-388959-A (8th Judicial Dist. Nev. 9/8/1998).

Some tax protesters also think that there is support in a 1947 Circuit Court decision, in which the court said:

“Nothing alleged to have been done amounts to a levy, which requires that the property be brought into a legal custody through seizure, actually or constructive... Levy is not effected by mere notice.”

United States v. O’Dell, 160 F.2d 304, 307 (6th Cir. 1947).

“Constructive seizure” is exactly what a notice of levy is intended to achieve, but the O’Dell court apparently decided that the government hadn’t served enough documents, stating:

“Section 3692 [of the Internal Revenue Code of 1939] does not prescribe any procedure for accomplishing a levy upon a bank account. The method followed in the cases is that of issuing warrants of distraint, making the bank a party, and serving with the notice of levy copy of the warrants of distraint and notice of lien. [citations omitted] No warrants of distraint were issued here.”

So the O’Dell court believed that a levy could be made by serving a “notice of levy” along with a “warrant of distraint” and “notice of lien,” and the problem was that the IRS had omitted the “warrant of distraint.” (The issuance of warrants by the officers of the IRS—and not any court—was authorized by section 3692 of the 1939 Code, which stated that “the collector may levy, or by warrant may authorize a deputy collector to levy, upon all property and rights to property....”) But the O’Dell case was decided under the tax code enacted in 1939, and at least one other Circuit Court disagreed that a “warrant of distraint” was needed. United States v. Eiland, 224 F. 2d 118, 121 (4th Cir. 1955). The issue became an historical footnote when Congress enacted the Internal Revenue Code of 1954, because the word “warrant” was not included in section 6331 (which is the successor to section 3692 of the 1939 Code, and authorizes the IRS to levy on property). Under the 1954 code, courts have unanimously agreed that service of a “notice of levy” is sufficient to make a levy and that the holding of the O’Dell decision is no longer valid.

“In their complaint, the plaintiffs cite to the Internal Revenue Code and the supporting regulations from 1844 (14 STAT.107), 1939 (26 U.S.C. section 3692) and 1954 (1954 U.S. Code Cong. and Adm. News 4555, House Rep. No. 1337). Each of these laws allows a ‘collector’ to levy on property to collect taxes, but requires that the ‘collector’ authorize BY WARRANT a deputy collector to levy. They also cite a number of cases which held that a warrant of distraint is a procedural requirement. All of the cases were decided by 1957.

“The law has changed. 26 U.S.C. section 3692 has been repealed and replaced by 26 U.S.C. section 6331, which authorizes the Secretary of the Treasury to collect unpaid taxes by levy upon all property and right to property belonging to the taxpayer. 26 U.S.C. section 6331(a). The term levy includes ‘the power of distraint and seizure by any means.’ 26 U.S.C. section 6331(b). Neither the statute nor the implementing regulations at 26 C.F.R. section 301.6331 require that a warrant of distraint be obtained, and there is no further distinction between the collector (now district director) and a deputy collector (now revenue officer).”

Leady v. United States, 74 AFTR2d ¶94-5225, 94 TNT 156-36, No. 92-0094-C (U.S.D.C. N.D. W.Va. 7/15/1994) (footnote omitted).

See also, Rosenblum v. United States, 300 F.2d 843 (1st Cir. 1962); United States v. Manufacturers National Bank, 198 F.Supp. 157 (N.D. N.Y. 1961); Boyajin v. United States, 825 F. Supp. 714 (E.D. Pa. 1993).

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IRS employees can be sued for fraudulently issuing notices of lien or notices of levy.

The word in that sentence that brings it close to truth is “fraudulently,” because the government (not the agent individually) can be sued for a wrongful levy. But to tax protesters, all liens and levies are “fraudulent,” which makes this statement pure fantasy.

The reality is that federal employees are generally immune from personal liability for what they do in the collection of taxes. I.R.C. section 7433(a) states:

“If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions.”

I.R.C. section 7433(a), (emphasis added.)

Section 7432, which is referenced in section 7433(a), provides a similar civil remedy if a federal employee knowingly or negligently fails to release a lien.

Of course, taxpayers can still sue the government itself for reckless, intentional, or negligent collection activities, but then you have to prove that there was an actual violation of laws or regulations, and tax protesters always fail in their proof because, as illustrated repeatedly in this FAQ, tax protesters don’t know what the law is and can’t tell the difference between following the law and violating the law.

Tax protesters will often try to ignore section 7433 and file a “Bivens” action for alleged violations of constitutional rights. In Bivens v. Six Unknown Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971), the Supreme Court held that there can be a civil action against a federal employee for damages caused by a violation of constitutional rights if the plaintiff can show that (1) a constitutional right was violated by the federal employee; (2) the employee is sued in their individual capacity; and (3) no alternative way exists to seek relief for the constitutional violation. Federal courts have unanimously agreed that I.R.C. section 7433 is a form of alternative relief that completely bars any “Bivens” action against a IRS employee.

“[A] Bivens action should not be inferred to permit suits against IRS agents accused of violating a taxpayer’s constitutional rights in the course of making a tax assessment.”

Shreiber v. Mastrogiovanni, 2214 F.3d 148, 152 (3d Cir. 2000).

“Bivens actions are inapplicable for claims arising from federal tax assessment or collection.”

Adam v. Johnson, 355 F.3d 1179, 1184 (9th Cir. 2004).

See also, Seibert v. Baptist, 594 F.2d 423, 431-32 (5th Cir. 1979), cert. den., 446 U.S. 918 (1980); Cameron v. I.R.S., 773 F.2d 126 (7th Cir. 1985); Baddour, Inc. v. United States, 802 F.2d 801, 807-809 (5th Cir. 1986); Wages v. I.R.S., 915 F.2d 1230 (9th Cir. 1990), cert. den., 498 U.S. 1096 (1991); Fishburn v. Brown, 125 F.3d 979, 982-83 (6th Cir.1997); Dahn v. United States, 127 F.3d 1249, 1254 (10th Cir. 1997) (holding that “in light of the comprehensive administrative scheme created by Congress to resolve tax-related disputes, individual agents of the IRS are also not subject to Bivens actions”).

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Banks and employers that honor levies can be sued

Wrong again.

The Internal Revenue Code very clearly provides that banks, employers, and other third parties that honor levies are immune from suit by the taxpayer, and that the sole remedy of the taxpayer is to sue the government for a refund of any tax erroneously collected by levy.

“Any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made who, upon demand by the Secretary, surrenders such property or rights to property (or discharges such obligation) to the Secretary (or who pays a liability under subsection (d)(1)) shall be discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such property or rights to property arising from such surrender or payment.”

I.R.C. section 6332(e).

And the courts will enforce this provision whenever necessary to protect a bank or employer. For example:

“As to [bank employee] Mr. Thomas, quite rightly, he asserts in his motion to dismiss that he is immune from any claim arising out of the surrender of funds from Plaintiffs bank account pursuant to the Notice of Levy. United States statute is clear that “[a]ny person in possession of property subject to levy upon which levy has been made who, upon demand by the Secretary, surrenders such property to the Secretary shall be discharged from any obligation or liability to the delinquent taxpayer . . . .” 26 U.S.C. § 6332(e) (2004). “Person” as defined in the statute includes “an officer or employee . . . who . . . is under a duty to surrender the property . . . or discharge the obligation.” Id. § 6332(f). Not only is Mr. Thomas immune from any suit brought by a tax evader for honoring the levy, if he had failed to surrender the funds to the IRS, he would have become liable himself for the amount he failed to surrender. Id. § 6332(d)(1). The Tenth Circuit has recognized the complete defense afforded by 26 U.S.C. § 6332(e) for “honoring . . . federal tax levies.” U.S. v. Triangle Oil, 277 F.3d 1251, 1259 (10th Cir. 2002). In light of the statute and case law, it is clear the Mr. Thomas cannot be held liable by Plaintiffs for surrendering funds from Plaintiffs’ bank account pursuant to a valid levy by the IRS. If the Plaintiffs contest the validity of the levy, that matter should be taken up with the IRS by filing Form 8546, as referenced on the Notice of Levy.”

Jones v. Bass, 343 F.Supp.2d 1066, 2004 TNT 209-5, No. 04-CCV-53-D (D. Wyo. 2004), aff’d 2005 TNT 172-10, No. 04-8113 (10th Cir. 2005), cert. den. 2004 TNT 209-5, No. 05-868 (3/20/2006).

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I can sue my employer for withholding taxes without my consent.

Wrong again. The employer is required by law to withhold income taxes from the compensation paid to employees, and the employees have no remedy against the employer.

This result is sometimes said to be required by the anti-injunction act, which deprives courts of any jurisdiction to prevent the collection of federal taxes. See, for example, Chandler v. Perini Power Constructors, Inc., 520 F. Supp. 1152, 1156 (D.N.H. 1981).

Those courts which have decided that they have jurisdiction to hear the employee’s complaint, have also ruled that the employee has no right to sue the employer, and that the employer is fully protected by federal law. Edgar v. Inland Steel Co., 744 F.2d 1276, 1278 (7th Cir. 1984) (describing employee’s suit against employer to recover withheld wages as “yet another disturbing example of a patently frivolous appeal filed by abusers of the tax system merely to delay and harass the collection of public revenues”); Lepucki v. Van Wormer, 587 F. Supp. 1390, 1393 (N.D. Ind. 1984); Lonsdale v. Smelser, 553 F. Supp. 259, 260 (N.D. Tex. 1982).

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The Tax Court is controlled by the IRS and always rules in its favor.

Wrong. The IRS has no control over the Tax Court, and the Tax Court does not always rule in favor of the IRS.

Like other federal judges, Tax Court judges are appointed by the President and confirmed by the Senate. Unlike other federal judges, they serve terms of only 15 years. (Other federal judges hold their offices “during good Behaviour,” which means that they can serve for the rest of their lives if they are not impeached.) Tax Court judges can also be removed from office by the President “after notice and opportunity for public hearing, for inefficiency, neglect of duty, or malfeasance in office, but for no other cause.” I.R.C. section 7443(d). (Other federal judges can be removed only for “Treason, Bribery, or other high Crimes and Misdemeanors” if impeached by the House of Representatives and convicted by the Senate.) These differences exist because the Tax Court is what is sometimes known as an “Article I court” and not an “Article III court” because it was created by Congressional legislation outside of the rules that normally govern federal courts under Article III of the Constitution.

And Tax Court judges are not always former IRS or Treasury employees. A review of the Tax Court in 2005 showed that almost half of the judges spent their careers in private practice, representing taxpayers and not the government, before being appointed to the court.

Finally, there is no empirical evidence showing any bias in favor of the government. In fact, one law professor reviewed a number of Tax Court opinions and concluded that the Tax Court was biased towards taxpayers and not the IRS. Maule, James Edward, “Instant Replay, Weak Teams, and Disputed Calls: An Empirical Study of Alleged Tax Court Judge Bias,” 66 Tenn.L.Rev. 351 (1999), Villanova Law/Public Policy Research Paper No. 2001-5.

Tax protesters also overlook the fact that Tax Court cases can be appealed to the Circuit Courts of Appeal, and those “Article III” federal appellate judges regularly and uniformly affirm the decisions of the Tax Court against the nonsensical arguments of tax protesters, as is illustrated by many of the court citations in this FAQ. In other words, the problem is not the Tax Court, but that tax protesters make crazy arguments.

A peculiar notion common to tax protesters is that the Tax Court cannot decide constitutional issues, but the Tax Court is bound to follow the Constitution in the same way as any other federal judge, and there are many Tax Court decisions on constitutional issues. For example, there are several Tax Court decisions that have invalidated IRS regulations, sometimes on constitutional grounds. See, for example, Tate & Lyle, Inc. v. Commissioner, 103 T.C. 656 (1994), rev’d 87 F.3d 99 (3d Cir. 1996).

Finally, if the Tax Court were really biased against taxpayers, tax lawyers would have figured it out and challenged the IRS in federal district court instead of Tax Court. (The Tax Court allows the taxpayer to litigate tax disputes with the IRS before the IRS assesses the tax or begins collecting the tax, but if the taxpayer is willing to pay the disputed tax and file a claim for a refund, the taxpayer can sue for the refund in federal district court.) But tax lawyers know that their clients will get a fair hearing in Tax Court and are usually willing to litigate their clients’ cases in that court.

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Fundamental Misconceptions, Illiteracy, and Illogic

There are some recurring legal or logical flaws in most tax protester arguments.

Not understanding the legal process, or the meaning of “law.” (E.g., “Why do you always assume that the courts are right and the tax protesters are wrong? Couldn’t the courts be wrong about what the Constitution means?”)

I am often asked, “Why do you always assume that the courts are right and the tax protesters are wrong?” Or, “Couldn’t the courts be wrong about what the Constitution means?” Those questions demonstrate that the questioner doesn’t really understand what is meant by “law” or the “rule of law.”

Law is not some kind of abstraction that floats in the air, free from any connection to people or events. “The law” is what legislatures, courts, and governments do, and the real test of what the law “is” shows in how the law is applied in actual cases.

So when lawyers talk about what “the law” is, they are talking about how a judge will rule. Not how the judge should rule, or might rule, but will rule. As Justice Oliver Wendell Holmes once explained, “the only definition of law for a lawyer’s purposes is something which the Court will enforce.” Letter to Sir Frederick Pollock, 7/3/1874. Or, more famously: “The prophecies of what the courts will do in fact and nothing more pretentious are what I mean by the law.” The Paths of the Law (1897).

The process of law is also a process of consensus. We have a variety of procedures, some political, some judicial, and some bureaucratic, for determining what the law should be and how it should be applied. If we don’t like the results, we have ways of changing the results and, when there are conflicts, we have ways of resolving conflicts. However, when the courts, the legislatures, and the voters all agree on what the law is, then that is what the law is. The fact that some people believe that the law should be different that what courts have said it is doesn’t mean that the law is different from what the courts have said, but only that they should argue their positions within the political system and attempt to change the results.

In the case of the income tax, there is no conflict. The judicial, executive, and legislative branches of our government, and a majority of the voters, have all agreed for more than 90 years that (1) an income tax is constitutional, (2) it applies to wages, and (3) every citizen and resident of every state is required to file a tax return and pay the tax. That is what the law is. There is no question about it.

So this FAQ states what “the law” is, because a judge will rule against the tax protester arguments described in this FAQ 100% of the time. Not 95% of the time, or even 99.999% of the time. 100.00%.

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Not understanding the meaning of “due process.”

Tax protesters constantly complain about a lack of “due process,” but their complaints show that they don’t really understand the meaning of constitutional due process.

Constitutional due process requires only that a person receive notice and have an opportunity to have a hearing before an impartial trier of fact. See Twining v. New Jersey, 211 U.S. 78, 110 (1908) ; Jacob v. Roberts, 223 U.S. 261, 265 (1912) . An actual hearing (or trial) is not necessary if the right to a hearing is not exercised. And in the case of the collection of taxes, the Supreme Court has held that a pre-collection hearing is not necessary if there is an opportunity for a post-collection hearing and remedy. 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.”).

To help understand the difference between a hearing and an opportunity to be heard, consider a typical civil action by a creditor attempting to enforce an obligation of a debtor. (For the purpose of this example, it doesn’t make any difference whether the obligation arises out of a contract, such as a credit card debt or mortgage, or out of a tort, such as an automobile accident or medical malpractice.) If a creditor files a complaint in court asking for a judgment against the debtor, a copy of the complaint must be served on the debtor, and the complaint typically includes a “notice to plead” informing that debtor that if he does not respond to the complaint, a judgment may be entered against him. The service of the complaint, along with the notice to plead, provides the necessary notice to the debtor of his opportunity to be heard. However, if the debtor does not respond to the complaint, there is no need for a court hearing and no need for any review by a court, and a clerk can enter a default judgment against the debtor. Once a judgment is entered, the creditor has a lien against all of the debtor’s real property located within the jurisdiction of the court and the creditor can direct the Sheriff to seize personal property of the debtor without any need for any additional order of any court.

For the imposition of taxes, the steps are slightly different but the function of the steps remains the same. Instead of filing a complaint with a court and sending a copy of the complaint to the taxpayer, the IRS sends the taxpayer a notice of deficiency, along with information about how the taxpayer can contest the deficiency in Tax Court. (See I.R.C. Section 6212.) If the taxpayer fails to petition the Tax Court within the time allowed, then the IRS is allowed to enter an assessment of the deficiency. (I.R.C. section 6213(a).) The assessment acts as a lien upon all of the taxpayer’s property (I.R.C. section 6321), and the IRS can proceed to levy on that property if the taxpayer fails to pay the assessment after demand. (I.R.C. section 6331.)

The notice of deficiency therefore serves the same function as a notice to plead, and the assessment serves the same function as a default judgment. As the Supreme Court has noted:

“The assessment [of tax] is given the force of a judgment, and if the amount assessed is not paid when due, administrative officials may seize the debtor’s property to satisfy the debt.”

Bull v. United States, 295 U.S. 247, 260 (1935).

Despite all these statutes and Supreme Court opinions, tax protesters continue to insist that the federal income tax itself is a deprivation of property without due process, regardless of the procedures used, and that the collection of income taxes by levy or lien without any court order violates due process.

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Not understanding the meaning of “jurisdiction.”

The word “jurisdiction” is most commonly used by Congress, courts, and lawyers to mean one of two different things:

But when tax protesters talk about “jurisdiction,” they usually aren’t talking about either of those kinds of jurisdiction, but the power of the federal government to enact and enforce laws. But the Constitution uses the words “legislative power” to describe the powers of Congress, and the words “judicial power” to describe the powers of the federal courts. And, as explained elsewhere in this FAQ, the Constitution clearly gives Congress the power to impose taxes on the people within the states of the United States and the federal courts clearly have the power to enforce those taxes. Claims to the contrary are simply silly, and often amount to a kind of legalistic gibberish.

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Taking quotations out of context.

Many tax protester arguments rest upon quotations that are taken out of context and misapplied. Some examples:

One sure sign that a quotation is taken out of context is that the tax protester has quoted from a court opinion that reached a result that is completely contrary to what the tax protester is claiming is the right result. So, for example, tax protesters frequently argue that the income tax is unconstitutional by quoting from the opinion of the Supreme Court in Brushaber v. Union Pacific R.R., 240 U.S. 1 (1916), completely ignoring the fact that the Brushaber decision affirmed that the federal income tax is constitutional. Clearly, a tax protester who quotes the Brushaber decision has taken the words of the court’s opinion out of context.

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A belief that the word “includes” is restrictive.

A surprisingly large number of tax protester arguments rest upon an obtuse misunderstanding of the word “includes.”

In ordinary, everyday English, the word “include” is normally used to describe an incomplete list, and does not necessarily exclude anything not included in the list. For example, one dictionary has explained the proper usage of “include” in this way:

Include is used most appropriately before an incomplete list of components: The ingredients of the cake include butter and egg yolk. If all the components are named, it is generally clearer to write: The ingredients are....

Usage note on “include,” American Heritage Dictionary (2d College Ed. 1985).

So in normal English usage, the word “includes” is used to add things, but not exclude or subtract things. For example, to say that “The recipe included tomatoes” does not say anything about what else the recipe might have contained. The use of the word “includes” in a definition can expand the scope or meaning of a word or phase, but it usually does not restrict or exclude anything from the definition.

Section 7701(c) of the Internal Revenue Code confirms this usage of “include” because it expressly states that using the word “includes” in a definition does not exclude anything that would otherwise be included in the meaning of the term being defined. So a definition of “employee” to include government employees does not exclude non-government employees, and a definition of “state” to include the District of Columbia does not mean that the states of the United States are no longer considered to be states, and yet tax protesters insist that the word “employees” mean only government employees, and “United States” does not include any of the states of the United States.

The Supreme Court has cited section 7701(c) (at a time when it was designated 7701(b)) in holding that things not expressly included within a definition are not necessarily excluded. The issue was whether a state is a “person” that could be served with a notice of levy in order to garnish the wages of a state employee. The statute in question, section 6332, stated that “person” for purposes of a notice of levy “includes an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to surrender the property or rights to property, or to discharge the obligation.” The Supreme Court held that a state was a “person,” stating:

“Though the definition of ‘person’ in 6332 does not mention States or any sovereign or political entity or their officers among those it ‘includes’ [footnote omitted], it is equally clear that it does not exclude them. This is made certain by the provisions of 7701(b) of the 1954 Internal Revenue Code that ‘The terms “includes” and “including” when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined.’ 26 U.S.C. (Supp. V) 7701(b).”

Sims v. United States, 359 U.S. 108, 112 (1959).

The court went on to hold that “the subject matter, the context, the legislative history, and the executive interpretation, i. e., the legislative environment, of 6332 make it plain that Congress that a State should be considered a “person” as used in 6332.” 359 U.S. at 112.

Other Supreme Court opinions confirm that a definition that uses “includes” does not exclude things not listed:

“The terms ‘means’ and ‘includes’ are not necessarily synonymous. ... The natural distinction would be that where ‘means’ is employed, the term and its definition are to be interchangeable equivalents, and that the verb ‘includes’ imports a general class, some of whose particular instances are those specified in the definition.”

Helvering v. Morgan’s Inc., 293 U.S. 121, 125, n. 1 (1934) (interpreting section 206 of the Revenue Act of 1926).

“In definitive provisions of statutes and other writings, ‘include’ is frequently, if not generally, used as a word of extension or enlargement rather than as one of limitation or enumeration.”

American Surety Co. of New York v. Marotta, 287 U.S. 513 (1933).

Tax Protester “Evidence”

Tax protesters usually rely on their innate illiteracy in dealing with the word “includes,” but sometimes cite a Supreme Court opinion for the proposition that “includes” is a word of “confinement” and not “enlargement.” But the opinion in question actually contradicts them.

The opinion of the Supreme Court included the following:

“[Including] may have the sense of addition, as we have seen, and of ‘also;’ but, we have also seen, ‘may merely specify particularly that which belongs to the genus.’ [Citation omitted.] It is the participle of the word ‘include,’ which means, according to the definition of the Century Dictionary, (1) ‘to confine within something; hold as in an inclosure; inclose; contain.’ (2) ‘To comprise as a part, or as something incident or pertinent; comprehend; take in; as the greater includes the less; . . . the Roman Empire included many nations.’”

Montello Salt Co. v. Utah, 221 U.S. 452, 464-465 (1911).

At first glance, those words look as if they might support the conclusion that a definition using the word “including” might confine or restrict the meaning of a word, but context is everything, and the words of the Supreme Court in Montello Salt can’t be understood without understanding the context of the dispute.

The issue before the court was the amount of land granted to the University of Utah as part of the enabling act that admitted Utah as a state of the United States. The grant was of 110,000 acres “to be selected and located as provided in the foregoing section of this act, and including all saline lands in said state....” The state of Utah took the position that the University was entitled to 110,00 acres and, in addition, all of the saline lands in the state, which had considerable value. The Montello Salt company, which had deeds to various saline lands, took the position that the University of Utah was entitled to only 110,000 acres, some (or all) of which could be saline lands, but was not entitled to more than 110,000 acres. And the Supreme Court agreed with Montello Salt, holding that “the saline lands are to be contained in or comprise a part of the 110,000 acres of land.” (452 U.S. at 465.)

But the saline lands were to be only “a part of” the 110,000 acres. Tax protesters would have you believe that, if “A includes B,” then “B” is the only thing in “A” because everything else is excluded. In the case before the Supreme Court, that would mean that the University of Utah is entitled to nothing but saline lands. But that’s not what the Supreme Court said was the right result.

The holding of the Supreme Court really contradicts what tax protesters want to believe, because if you change “the saline lands” to “government employees” and “110,000 acres of land” to “employees subject to withholding,” you get the conclusion that “government employees are to be contained in or comprise a part of the employees subject to withholding,” which does not exclude any non-government employees from any withholding. The holding of the Supreme Court is therefore perfectly consistent with the meaning of “includes” in I.R.C. section 7701(c) and perfectly inconsistent with what tax protesters believe.

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Ignoring the ordinary meaning of words.

In their struggles to overcome the plain meaning of the 16th Amendment, section 61 of the Internal Revenue Code, and other tax laws, tax protesters often claim that tax laws are written in “legalese” that does not mean the same as normal, every-day English, but the opposite is true, as many Supreme Court decisions will affirm:

“The legislature must be presumed to use words in their known and ordinary signification.”

Old Colony R. Co. v. Commissioner of Internal Revenue, 248 U.S. 552, 560 (1932), quoting Levy’s Lessee v. McCartee, 31 U.S. 47, 49 (1832).

“[T]he words of statutes--including revenue acts--should be interpreted where possible in their ordinary, everyday senses.”

Crane v. Commissioner of Internal Revenue, 331 U.S. 1, 6 (1947); Malat v. Riddell, 383 U.S. 569, 571 (1966).

“In interpreting the meaning of the words in a revenue Act, we look to the ‘ordinary, everyday senses’ of the words.”

Commissioner v. Soliman, 506 U.S. 168, 174 (1993).

“Common understanding and experience are the touchstones for the interpretation of the revenue laws.”

Helvering v. Horst, 311 U.S. 112, 118 (1940).

Only by ignoring the plain and ordinary meanings of words can tax protesters reach nonsensical conclusions such as that “income” in the ordinary sense is not “income” within the meaning of the 16th Amendment to the Constitution (and that the 16th Amendment does not mean what it says), that the states of the United States are not “states” within the meaning of the Internal Revenue Code, that “employees” in the ordinary sense are not “employees” within the meaning of the Internal Revenue Code, that human beings are not “persons,” and so forth.

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Misuse of the maxims “expressio unius est exclusio alterius” or “ejusdem generis.”

The Latin phrase “expressio unius est exclusio alterius” is a maxim of statutory construction, and translates roughly as “the expression of one meaning is an exclusion of others.” The maxim “is an aid to construction, not a rule of law. It can never override clear and contrary evidences of Congressional intent.” Neuberger v. Commissioner, 311 U.S. 83, 88 (1940). It “serves only as an aid in discovering the legislative intent when * * * [it] is not otherwise manifest.” United States v. Barnes, 222 U.S. 513, 519 (1912); see 2A Sutherland Stat. Const. sec. 47.23 (1984).

A similar, but somewhat different principle, is “ejusdem generis,” meaning “of the same kind.” A court following the principle of ejusdem generis might construe general words that follow or precede specific words in a statute as limited to meanings similar in nature to those enumerated by the preceding specific words. See, Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 114-15 (2001). So, for example, the deduction allows by IRC section 165(c)(3) for losses due to “fire, storm, shipwreck, or other casualty” has been limited to “casualties” similar in suddeness and severity to fires, storms, and shipwrecks, and not extended to gradual losses, such as termite infestations. See United States v. Rogers, 120 F. 2d 244 (1941).

These rules of construction are used to eliminate ambiguities or uncertainties in statutes, but tax protesters frequently use them to distort the meaning of unambiguous statutes and negate the ordinary meanings of words.

For example:

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An over-reliance on generalities and platitudes.

Many tax protesters seem to be unable to understand that the judicial decision-making is more than choosing from among competing generalities.

The great American jurist Oliver Wendell Holmes Jr. (who served on both the New York Court of Appeals and the U.S. Supreme Court and wrote a classic text on jurisprudence, “The Common Law”) wrote that “General propositions do not decide concrete cases.” Lochner v. New York, 198 U.S. 45, 75 (1905) (dissenting). And so many tax protester “arguments” have been characterized by judges as nothing but a “hodgepodge of ... irrelevant platitudes” (Crain v. Commissioner, 737 F.2d 1417, 1418 (5th Cir. 1984)), by which the judge meant that the tax protesters were doing nothing but stating an overly-general proposition without any justification for why that particular proposition should apply to the particular case.

One of the most banal platitudes that is frequently trotted out by tax protesters is that no person shall be “deprived of life, liberty, or property, without due process of law,” which is found in the 5th Amendment to the Constitution. But obviously people can be deprived of life, liberty, or property with due process of law. In fact, that’s what court do. They deprive people of life,liberty, or property. Every time a court finds a defendant guilty, the court has deprived the defendant of life or liberty, and every time a court rules in favor of a plaintiff or defendant, the court has deprived either the plaintiff or the defendant of some property. So saying that a court has deprived someone of life, liberty, or property is not particularly interesting unless you can explain exactly what the court did (or did not do) that deprived that particular someone of due process.

Similarly, the general proposition that every man has the right to his own labor does not necessarily lead to the conclusion that the government cannot tax the “common right” of labor. If the government could never impose a tax that took away someone’s rights to their property, then the government could never tax anyone for anything. So the claim that a tax deprives someone of “property” or a “right” is pretty much meaningless.

A generality frequently cited by tax protesters is the following statement by the Supreme Court:

“In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government, and in favor of the citizen.”

Gould v. Gould, 245 U.S. 151, 152 (1917).

The actual issue in Gould v. Gould was whether alimony is a kind of income subject to tax, and the court held that it was not. (The Internal Revenue Code has since been amended to make it clear that alimony is deductible by the payor and income to the recipient.) But tax protesters continue to trot out this “one size fits all” generality in support of just about any kind of claim, including the claims that wages are not income, or that the Internal Revenue Code must identify the “source” of their income, even though I.R.C. section 61(a) is clear that gross income includes all income “from whatever source derived” and that “compensation for services” (such as wages and salaries) is included in gross income, so there is no “case of doubt” to be construed.

To the extent that the Gould case (in 1917) represents a restrictive view of the scope of the tax laws, that view was over-ruled by Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430-431 (1955), in which the Supreme Court declared that it “has given a liberal construction to this broad phraseology [defining “gross income”] in recognition of the intention of Congress to tax all gains except those specifically exempted.” And the Supreme Court has also stated that it is a “settled principle” that “exemptions from taxation are not to be implied; they must be unambiguously proved.” United States v. Wells Fargo Bank, 485 U.S. 351, 354 (1988), citing Oklahoma Tax Comm‘n v. United States, 319 U.S. 598, 606 (1943); United States Trust Co. v. Helvering, 307 U.S. 57, 60 (1939); Rapid Transit Corp. v. New York, 303 U.S. 573, 592 -593 (1938). This “settled principle” works against tax protesters, because it shows that, once their receipts are within the definition of gross income” in section 61, any claimed exemption (such as the exemption claimed in the “section 861” argument) must be “unambiguously proved.”

Notice that the reliance of generalities is the opposite of the tendency of tax protesters to fail to see the forest for the trees. Tax protesters sometimes seem to go “guardrail to guardrail” in crashing back and forth between over-generalities and over-specifics. Anything to avoid the important realities.

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Rejecting simple explanations.

Tax protesters regularly violate a principle of logic known as “Occam’s Razor.”

William of Occam (sometimes spelled “Ockham”) was a theologian and philosopher of the 14th Century who observed that the correct explanation is usually the one that requires the fewest number of entities. In other words, the simplest explanation is usually the correct explanation. This “rule of parsimony,” also known as “Occam’s Razor,” is regularly violated by tax protesters who, in their efforts to make their ideas conform to observable reality, often produce incredibly complicated arguments and explanations relying on “facts” that are demonstrably false, wildly improbable, or completely unverifiable.

For example, when forced to confront the fact that their ideas about the U.S. Constitution and the Internal Revenue Code are refuted by hundreds of court decisions, and that not a single judge has ever agreed with their crackpot arguments, tax protesters retreat into paranoid delusions, claiming that there is an elaborate and complicated conspiracy among all of the officials of the IRS, all of the members of Congress, every federal judge, and most of the legal profession.

The most fantastic example of this kind of complicated explanation can be found in the writings of Larken Rose about the “section 861” argument. Rose (who was convicted in 2005 for willful failure to file income tax returns) believes that the Constitution does not allow Congress to tax the domestic income of American citizens, and that this is understood by Congress, IRS, and most judges, but that the Internal Revenue Code and regulations were written in a way to be deliberately deceptive so that Americans would be tricked into paying taxes that couldn’t really be enforced them again. According to Rose, the reason that Rose’s arguments lose in court is that the judges are in on the deception and so rule in favor of the IRS even though the judges really know the IRS is wrong. Rose completely ignores (or rejects) the much simpler explanation, which is that the federal income tax is constitutional and applies to American citizens on all of their income (meaning that the 16th Amendment means what it says, the Code and regulations mean what they say, and the courts mean what they say).

Related topics:

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Assuming that, if a statement is true, the converse of the statement must also be true.

Tax protesters regularly assume that, if “A” implies “B,” then “B” also implies “A,” which is not true at all. For example, the statement “all dogs are mammals” does not in any way imply that all mammals are dogs, or that something that is not a dog is not a mammal.

An amusing example of this kind of false logic comes from comedian Woody Allen, who argued that “All men are mortal. Socrates was mortal. Therefore, all men are Socrates.” (He was parodying a classic example of a syllogism.)

Yet tax protesters regularly conclude that a statement such as “corporate profit is income” means that all income must be “corporate profit” and so the income tax only applies to corporations.

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Inconsistency in applying “ad hoc,” result-oriented arguments.

In their desire to avoid taxes, tax protesters start with the proposition that the income tax is invalid and try to construct an argument (any argument) to justify that conclusion. The result is an “ad hoc” argument that collapses of its own weight because, if it were applied to other situations, it would lead to absurd results. So, for example:

Many other examples of short-sighted, “ad hoc” arguments can be found in this FAQ.

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Not being able to see the forest for the trees.

The expression “not being able to see the forest for the trees” means that you have become so bogged down in details that you are no longer able to see the “big picture.” And tax protesters frequently look so hard at individual words in court opinions, statutes, and regulations that they reach conclusions that are completely nonsensical, and completely contrary to the intent of both Congress and the framers of the Constitution. In many cases, tax protester claims lead to a reductio ad absurdum, which is a proof that a proposition is incorrect by first assuming that it is correct and then showing that the proposition leads inevitably to absurd results. Many tax protester arguments cannot survive that kind of analysis.

For example:

Other examples can be found in the “related topics” below.

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A belief in the “magic” of words.

Tax protesters also seem to believe that changing the name of something changes the nature of the thing itself. Lawyers themselves sometimes fall into this trap, because the applications of laws frequently depend on how something is classified, and there is always a temptation to try to convince a court to treat a particular thing or event simply by changing the terms used to describe the thing or event.

But the fallacy of assuming that names can be used as a substitute for reason is well illustrated in a story (probably apocryphal) that is often told about Abraham Lincoln. He was repeatedly asked during the Civil War why he didn’t sign a declaration freeing the slaves, and in one case President Lincoln is supposed to have asked (rhetorically) how many legs a lamb would have if you called his tail a leg. The answer is still four, according to Lincoln, because calling a tail a leg doesn’t make it a leg. Lincoln’s point was that declaring a slave to be free didn’t make him free. Tax protesters don’t understand that kind of reality, and want to argue about the names of things, rather than the nature of things.

So, for example, tax protesters will claim that they are not “taxpayers” within the meaning of the Internal Revenue Code, as if changing the label that might be applied to them would change the way the tax laws apply to them. But the definition of “taxpayer” in the Internal Revenue Code is simply “any person subject to any internal revenue tax.” If you are subject to a tax, then you are a “taxpayer.” But tax protesters start with the conclusion and work backwards, believing that, if they can convince the court that they are a “non-taxpayer,” then the tax laws will magically no longer apply to them.

In extreme cases, tax protesters have argued that even the forms of words have what appear to be magical properties, so that the capitalization of names has legal significance, as well as order of words (such as the difference between “United States District Court” and “District Court of the United States”).

One judge has characterized the “pile of legalistic gibberish” filed by one plaintiff as resting on a belief in magic phrases:

“Based on her papers, Chrystal – who identifies herself as ‘Ambassador nonnie: chrystal’ of “satellite beach, Florida, Republic; near [32937]” – has fallen in with the Sovereign Citizen/Tax Protestor movement. In common with other so-called sovereign citizens, she appears to believe that ours is a legal system, not of statutes and precedent, but of sorcery, with parties prevailing as a result of their incantation of out-of-context passages from Black’s Legal Dictionary.”

Nonnie Chrystal v. Huntington National Bank, 2010 WL 1965870, No. 6:10-cv-Orl-31GJK (U.S.D.C. M.D. Fla. 5/17/2010).

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“Chaining” unrelated decisions together.

What I call “chaining” could also be called a “false syllogism,” and it is the product of taking not just one, but two or more quotations out of context from different court opinions.

A syllogism is a classic logical structure, consisting of a major premise, a minor premise, and a conclusion. A commonly used example of a syllogism is:

So, a tax protester will quote one court opinion that says that an excise is a tax on a privilege, and a quote from a second court opinion that the right to work is a fundamental right, and reach the conclusion that Congress cannot tax income from labor with an excise. Among the many problems with this argument is that the second court opinion (relating to the “right to work”) had nothing to do with taxation. So the chain from “excise” to “tax on labor” includes a link that has nothing to do with either the preceding premise or the conclusion.

Another example is one of the arguments that wages are not “income.” The tax protester will find a court decision that says that “income” is a form of “gain,” and then another court decision that the payment of compensation for services is not a “gain,” and announce that wages are not income. However, the second court decision is not about taxes, but about the meaning of “gain” as that term is used in nonprofit corporation statutes (which typically prohibit any “gain” to shareholders or other individuals).

This kind of chaining is not “logic” or “legal reasoning” but simply the manipulation of words and phrases without any attempt to understand the meaning of the words. One judge responded to these kinds of tax protester arguments by pointing out to the tax protester that, according to the Bible, Judas hanged himself (Matt. 27:5) and Jesus said “Go and do likewise” (Luke 10:37). Jamming those two unrelated things together creates a meaning that Jesus never intended.

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Lies and fabrications.

A surprisingly large number of tax protester web sites promote arguments based on “quotations” that are complete fabrications. Sometimes, this is the result of what might be described as “mutations” as text is copied from web site to web site, so that what started out as a comment on a court opinion becomes part of the opinion itself. (Did you ever play “telephone” as a child? If you did, then you can understand how information can be garbled in this way.) So, for example, tax protesters often cite Stapler v. United States, 21 F.Supp 737, for the proposition that “Income is not a wage or compensation for any type of labor,” but the words “wages” and “labor” appear nowhere in the decision, and the “quotation” is a fabrication.

Tax protesters also make sweeping (and ridiculous) statements about history (particularly about the “founding fathers”) that are completely wrong and based entirely on wishful thinking without any historical support. For example, tax protesters will often claim that the authors of the Constitution never intended for Congress to have the power to tax state citizens, but such a statement is completely at odds with all of the historical evidence that the authors of the Constitution intended exactly that result, which is obvious from even the most cursory reading the the Federalist Papers, Madison’s Notes, or any other writings from that period of history.

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Legalistic gibberish.

And some tax protester arguments can only be described as complete fantasies, written in a kind of pseudo-legalistic kind of gibberish. There are therefore many court opinions in which judges have admitted that they find the “arguments” of tax protesters to be incomprehensible or incoherent. One of the most frequently cited critiques is from the 5th Circuit of Appeals, and is often quoted by judges who do not intend to waste their time trying to decipher a tax protester’s rantings:

“Crain’s present appeal ... is a hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish.”

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

The author’s personal favorite is from a District Court opinion:

“[Defendant’s] argument in favor of vacating judgment is almost incomprehensible, and, to the extent it is understandable, is meritless.... “

United States v. Bell, 86 AFTR2d ¶2000-5209; CIV F 95-5346 OWW SMS (U.S.D.C. E.D.Ca. 7/24/2000).

The reason that tax protesters write gibberish is that they don’t understand basic legal concepts like jurisdiction, due process, or common law, and frequently misapply the meanings of even ordinary words like “income” and “includes.” Combine that kind of ignorance with self-righteous anger towards the entire legal system and delusions of literacy, and the result is usually an indecipherable tapestry of legal jargon woven together into an unintelligible mess.

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Paranoid (and Other) Delusions

Certain arguments of tax protesters transcend legal or logical fallacies, and can only be described as neurotic or psychotic delusions.

There are lots of tax protesters who have won cases against the IRS, such as John Cheek, Lloyd Long, and Vernice Kuglin.

No. There are a handful of people who have avoided criminal (but not civil) penalties by convincing a jury that they were too stupid or delusional to understand the tax laws and their violations were not “willful,” but no one has ever won against the IRS in a tax collection case using one of the frivolous arguments described in this FAQ. Some of the more notorious losers are described below.

(This section of the FAQ will not be updated after 7/19/2007. Instead, a Tax Protester Dossiers wiki has been established to provide information about tax protester gurus, promoters, icons, martyrs, enablers, and other “big fish.”)

John Cheek

John Cheek was a classic tax protester. He was a pilot for American Airlines who filed no tax returns for 5 years. He was convicted of willfully failing to file and appealed his conviction all the way to the U.S. Supreme Court, which reversed his conviction and remanded the case for a new trial. The opinion of the Supreme Court is rather confusing, and deals entirely with the issue of whether Cheek should have been allowed to present evidence that he sincerely believed that he was not required to file a tax return. The opinion is confusing because the court characterized his beliefs as “absurd” and ruled that he could not argue that the income tax was unconstitutional or otherwise invalid, but that he must be allowed to present evidence (and arguments) that he did not understand his statutory duty to file tax returns. United States v. Cheek, 498 U.S. 192 (1991). He was therefore allowed a new trial, but it didn’t do him any good, because he was convicted again at his second trial. See United States v. Cheek, 3 F3d 1057 (7th Cir. 1993).

Tax protesters will often try to claim that their violations of the tax laws were not “willful” because they had a “good faith belief” in what they were doing, but it didn’t work for John Cheek and it rarely works for anyone else.

Lloyd Long

The Lloyd Long case is one of the great “victories” of tax protesters, meaning that it is absolutely meaningless. Mr. Long was prosecuted for criminal failure to file and was acquitted by a jury, which apparently had a reasonable doubt about whether he had “willfully” failed to file. His acquittal does not “prove” that you are not required to file income tax returns, any more than the acquittal of O.J. Simpson “proves” that it is legal to kill your ex-wife.

Vernice Kuglin

Another largely meaningless acquittal by a jury in a criminal prosecution, which (usually) means only that the jury had doubts about whether the defendant (Ms. Kuglin) willfully failed to file a tax return.

Vernice B. Kuglin faced criminal charges for falsifying Forms W-4 and failing to pay taxes on $920,000 of income between 1996 and 2001, but was acquitted by a federal jury. United States v. Kuglin, No. 03-20111 (U.S.D.C. W.D. Tenn. 8/8/2003). According to newspaper accounts of the trial, jurors found persuasive the defendant’s argument that she attempted to obtain an explanation of the Service’s authority to collect taxes from her but her correspondence went unanswered. See 2003 TNT 155-12 (Aug. 11, 2003); 2003 TNT 155-13 (Aug. 11, 2003); 2003 TNT 158-2 (Aug. 14, 2003).

In the case of Ms. Kuglin, we also know that she did not escape civil liability for the taxes because she was later interviewed on a radio program and admitted that the IRS had garnished her salary to pay the taxes she owed. “American Radio” with Dave Champion (1/31/2004). Eight months later, she entered into a settlement with the IRS in Tax Court in which she agreed to pay more than half a million dollars in back taxes and penalties. Kuglin v. Commissioner, No. 21743-03, 2004 TNT 177-14 (T.C. 9/1/2004).

Others

Gail Sanocki is another mythical (and unpublished) case, the facts of which are not clear. Apparently, the IRS was proceeding against her and her husband and, at some point in the proceedings, the IRS dropped its case against her (but not her husband). She had made many of the usual tax protester arguments, but the government probably dropped the case against her because of doubts about whether she was an “innocent spouse” and so was not responsible for the tax returns filed by her husband. Although tax protesters like to claim that the government was conceding the validity of her tax protester arguments, there is simply no reason to believe that it was anything but a case of the government deciding not to prosecute because of doubts about the evidence, not doubts about the law. (See the discussion of the Robert Lawrence case, above.)

The case of Robert Lawrence is another in which the government decided to dismiss an indictment and not prosecute, and many tax protesters have claimed that the government made its decision because Lawrence had raised the “Paperwork Reduction Act” argument and the government “knew” it would lose. However, in response to a motion by Lawrence for legal fees from the government, the government explained that, in preparing for trial, it had discovered errors in the calculations of some of the taxes alleged to have been owed by Lawrence and that the amounts actually owed were less than what was claimed in the indictment. The judge refused to allow the government to amend the indictment, and so the government decided to dismiss the indictment rather run the risk that the jury would not convict Lawrence when it learned that the government itself could not accurately calculate his tax liabilities. In ruling for the government on the issue of legal fees, the judge stated that he had “no reason to doubt” the government’s explanation for why it dismissed the indictment, and that Lawrence’s claim that the government “should have known” that Lawrence had a valid defense under the Paperwork Reduction Act of 1990 was “ridiculous.” United States v. Lawrence, 2006 TNT 153-15, No. 06-10019 (U.S.D.C. C.D. Ill. 7/31/2006). In short, Lawrence “won” because the government made a mistake, and not because Lawrence was right about anything.

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There are many lawyers, accountants, former IRS employees, and other well-educated people who agree with tax protester arguments.

Not really. There are a handful of what could best be described as misfits who have bought into the tax protester fantasy, and a few lawyers who could be best described as “enablers.” Some of the more notorious are described below.

(This section of the FAQ will not be updated after 7/19/2007. Instead, a Tax Protester Dossiers wiki has been established to provide information about tax protester gurus, promoters, icons, martyrs, enablers, and other “big fish.”)

Lowell H. (“Larry”) Becraft

The name of Lowell H. Becraft appears fairly frequently in tax opinions, usually due to the cases he has lost. See, for example, In re Lowell H. Becraft (United States v. Nelson), 885 F.2d 547 (9th Cir. 1989), in which 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”. No published decision can be found in which Mr. Becraft prevailed making any of the arguments described in this FAQ, and he himself has admitted that most of these arguments have been “destroyed” by adverse court decisions.

Irwin A. Schiff

Irwin Schiff has been convicted of criminal violations of the tax laws in three separate trials over the last thirty years, and has served time in prison following each conviction. His latest conviction, on October 24, 2005, was for conspiracy to defraud the United States, five counts of aiding and assisting in the filing of false federal income tax returns(i.e., the “zero returns” he prepared for his clients), attempting to evade and defeat the payment of tax, and six counts of filing false federal income tax returns, for which he was sentenced to 9 years and 7 months in prison and 36 months of supervised release, and ordered to pay $4,256,249.78 in restitution. United States v. Irwin A. Schiff, No. 2:04-CR-00119-1 (D.C. Nev. 3/14/2006), on appeal, No. 06-10199 (9th Cir.). He is currently in federal prison, inmate # 08537-014, and his projected release date is October 7, 2016, when he will be 88 years old.

The United States also has a civil judgment against Schiff for back taxes, penalties, and interest totalling $2,651,187.51, plus interest and other statutory additions accruing after June 14, 2004. United States v. Irwin A. Schiff, No. CV-S-01-0895 (D.C. Nev. 7/12/2004), aff’d No. 05-15233, 2006 TNT 176-15 (9th Cir. 9/11/2006) (unpublished opinion; sanctions of $6,000 imposed), cert den. No. 07-5812 (10/1/2007).

While Schiff was in prison following his first conviction, the IRS took the royalties from the sale of his book to pay his back taxes. For a fairly complete history of the losses of Irwin Schiff against the United States tax system, see Schiff v. United States, 24 Cl. Ct. 249, 252 (1991); Schiff v. United States, Civil No. N-86-354(WWE), 89-2U.S. Tax Cas. (CCH) ¶9551, 1989 WL 119410, 2, 1989 U.S. Dist. LEXIS 11807, 7 (D. Conn. Sept. 6, 1989) (summary judgment for United States in refund claim by Schiff for 1976 through 1978), aff’d 919 F.2d 830 (2nd Cir. 1990) 919 F.2d 830 (2nd Cir. 1990) (sanctions imposed for frivolous appeal), cert. denied, 501 U.S. 1238 (1991); United States v. Schiff, 876 F.2d 272 (2nd Cir. 1989); United States v. Schiff, 801 F.2d 108 (2nd Cir. 1986), cert. denied, 480 U.S. 945 (1987); Schiff v. Simon & Schuster, Inc., 780 F.2d 210 (2nd Cir. 1985); Schiff v. Simon & Schuster, Inc., 766 F.2d 61 (2nd Cir. 1985) (percuriam; affirming order sanctioning pro se litigant damages and double costs).); Schiff v. Commissioner, T.C. Memo. 1992-183; Schiff v. Commissioner, T.C. Memo. 1984-223. Schiff v. Commissioner, 751 F.2d 116 (2nd Cir. 1984) (per curiam; sanctions imposed for frivolous appeal)); United States v. Schiff, 647 F.2d 163 (2nd Cir. 1981), cert. denied, 454 U.S. 835 (1981); United States v. Schiff, 612 F.2d 73 (2nd Cir. 1979).

In pleadings filed in federal court, Schiff himself cited the above history of failure, as well as the opinions of a lawyer, a psychiatrist, and a psychologist, as evidence that his actions are irrational and the result of a “mental disease or defect,” so that he is unable to form act “willfully” within the meaning of the provisions of the Internal Revenue Code relating to tax fraud. “Defendant Irwin A. Schiff’s Opposition to United States’ Motion for Summary Judgment,” United States v. Schiff, No. CV-S-01-0895 (D.C. Nev. 1/21/2004).

Students of Mr. Schiff have not fared any better.

“At his criminal trial, Mr. Letscher testified that he filed tax returns and paid his taxes until 1980. In 1981, he began listening to and reading materials prepared by Irwin Schiff, a tax protester. Starting from late 1980, Mr. Letscher attended several seminars hosted by Mr. Schiff. He also subscribed to newsletters prepared by Mr. Schiff. On the basis of information from Mr. Schiff and Mr. Letscher’s own research, Mr. Letscher decided not to file any more tax returns because he could not find any law which required him to do so.”

United States v. Letscher, KTC 1999-648 (U.S.D.C. S.D.N.Y. 1999), (footnotes and citations omitted).

Mr. Letscher was convicted of both willful failure to file and tax evasion and was sentenced to 33 months imprisonment. In the civil action cited above, the United States sought to reduce the various tax deficiencies and tax liens against Mr. Letscher to judgments against him and trusts he controlled, and the above description of was part of the court’s opinion leading to the conclusion that “Mr. Letscher’s pattern of misconduct provides clear and convincing evidence that he intended to evade payment of federal income taxes and justifies the imposition of civil fraud penalties.”

“Middleton’s good-faith basis not to pay taxes was allegedly predicated in part on the teachings of Irwin Schiff, a self-proclaimed tax guru who has written numerous books and lectured extensively on the reasons why citizens have no legal obligation to pay income tax. ... Middleton also conceded that he continued to follow Schiff’s materials even though he knew that Schiff had previously been convicted of felony income tax evasion.”

United States v. Middleton, 246 F.3d 825, KTC 2001-185 (6th Cir. 2001), (conviction for attempting to evade or defeat income tax affirmed).

“Petitioner’s only argument against the imposition of the addition to tax and penalty for fraud is a Cheek defense. A good faith misunderstanding of the Internal Revenue Code may be a defense against additions to tax pursuant to section 6653(b) and penalties for fraud pursuant to section 6663. ... Petitioner’s argument is that he relied on Mr. Schiff’s book in filing the false Forms W-4 and not filing tax returns for the years in issue. Petitioner points to his testimony as evidence of his beliefs. His testimony was not credible. We need not, and do not, accept his self-serving testimony. [Citation omitted.] At the time petitioner ‘relied’ on what he read in Mr. Schiff’s book, he knew that Mr. Schiff had been convicted of failing to file tax returns. The propositions contained in Mr. Schiff’s book are the stale, meritless, and patently frivolous arguments that have been rejected by this Court scores of times and at least twice when presented by Mr. Schiff himself. Schiff v. Commissioner, T.C. Memo. 1992-183; Schiff v. Commissioner, T.C. Memo. 1984-223, affd. 751 F.2d 116 (2d Cir. 1984).”

Lopez v. Commissioner, T.C. Memo. 2001-211, 2001 TNT 155-9 (civil fraud penalties upheld against taxpayer who stopped filing tax returns after reading Schiff’s book “How Anyone Can Stop Paying Income Tax”).

Steven Swan met Irwin Schiff in 1995 and, after hearing Schiff’s theories and talking with him, Swan bought Schiff’s books and even began teaching Schiff’s theories at seminars and preparing tax returns based on Schiff’s theories. The results were disastrous because Swan was forced to close his real estate business after the IRS assess taxes and penalties against him and began levying on his bank accounts and other assets. Swan sued Schiff for misrepresentation, fraud, and negligence, but the suit was dismissed summarily. Steven A. Swan v. Irwin A. Schiff, No. 2:02-cv-00697 (U.S.D.C. Nev. 3/29/2004). Showing his typical compassion for his victims, Schiff publicly referred to Swan as “an idiot.” (Jason Pierce, “Author of ‘Voluntary’ Income Tax Theories Sued for Millions,” CNSNews.com (5/29/2002).) Swan himself was indicted and convicted for on 15 counts of preparing false income tax returns for others, two counts of filing false income tax returns for himself, and one count of corruptly impeding the administration of the tax laws, and was sentenced to nine years in federal prison. According to the Department of Justice, the federal judge increased Swan’s sentence above the federal sentencing guidelines because Swan obstructed justice by testifying falsely at trial and because the evidence at trial showed that Swan filed frivolous lawsuits against, threatened and sought the baseless criminal prosecution of IRS employees and other government officials who tried to assess and collect taxes from him.

See also:

United States v. Burdett, 962 F.2d 228 (2d Cir. 1992) (affirming conviction of defendant who was convinced in part by Schiff’s book entitled How Anyone Can Stop Paying Taxes that the filing of a tax return was voluntary, and that his wages were not taxable). In rejecting Burdett’s defense, the 2nd Circuit Court of Appeals stated “Burdett’s claim of a good-faith belief in his exemption was so baseless as to be a mockery of the good-faith defense. Measured by any known legal criteria, there is no support in the law for his view; it has been rejected so often that no one who, like Burdett, claims to have researched the question could still sincerely believe that someone in Burdett’s circumstances was exempt from the tax laws.” 962 F.2d at 229-230.

United States v. Payne, 978 F.2d 1177 (10th Cir. 1992) (affirming conviction of defendant who relied on Schiff’s books), cert. denied, 508 U.S. 950 (1993).

United States v. Dentice, 1999 WL 1038003 (9th Cir. 1999) (unpublished) (rejecting good faith defense in part because defendant could not reasonably rely on Schiff, who was neither a CPA nor an attorney and had himself been convicted of tax evasion).

Roth v. Commissioner, T.C. Memo 1992-563, 1992 TNT 194-22 (civil fraud penalties upheld against taxpayer who stopped filing tax returns after reading Schiff’s book “How Anyone Can Stop Paying Income Tax”).

United States v. Rowlee, 988 F.2d 1275 (2nd Cir. 1990)

William T. Conklin

William T. Conklin claims to be successful in fighting the IRS, and has described himself as a “known tax protester like Jesus Christ, Thomas Jefferson, Benjamin Franklin and George Washington.” Conklin v. United States, KTC 1994-259, Case No. 89-N-1514 (D. Col. 1994). Unfortunately, his claims of success are contradicted by the public record, because he has lost every case on record. See, e.g., Conklin v. Commissioner, 91 T.C. 41 (1988); Church of World Peace, Inc. v. Commissioner, T.C. Memo 1992-318; Church of World Peace, Inc. v. Commissioner, T.C. Memo 1994-87; Church of World Peace, Inc. v IRS, 715 F.2d 492; United States v. Church of World Peace, 775 F.2d 265; Conklin v. United States, 812 F.2d 1318; Conklin v. C.I.R., 897 F.2d 1032; Tavery v. United States, 897 F.2d 1027; Tavery v. United States, Civ. No. 87-Z-180, USDC Colorado.

Oddly enough, Conklin lists many of those cases on his web site as “wins,” but he never explains how he can “win” a case in which the court rules against him.

Joseph R. Banister

Joseph R. Banister is a bit of a puzzle, because he is (or was) a certified public accountant, and did work for the Internal Revenue Service, so he should know something about tax law, and yet he ended up buying into the tax protester craziness and quitting the IRS. He has since become one of the darlings of the tax protester cult and has apparently earned substantial fees for speaking at tax protester events.

His known clients have not fared well in court. For example, Banister advised Walter “Al” Thompson and apparently encouraged him not to file tax returns or pay employment taxes, as a result of which Thompson was indicted and convicted and is now in prison. Banister himself was indicted for conspiring with Thompson to evade taxes but his trial was separated from Thompson’s and Banister was acquitted after a jury trial. (Interestingly enough, Thompson was also acquitted of the charge that he conspired with Banister even though Thompson was convicted on all other charges, so two different juries in two separate trials agreed that the government’s evidence of conspiracy was insufficient to convict either of the alleged conspirators.)

Although Banister escaped criminal liability for his advice to Thompson, the Office of Professional Responsibility of the U.S. Treasury moved to bar Banister from practice before the Internal Revenue Service because of his advice to Thompson and others. A hearing was held before an Administrative Law Judge, and Banister was disbarred from IRS practice, the ALJ finding that Banister had violated the rules for practice before the IRS by his “absolutely wrong” advice to his clients and by failing to file personal tax returns for 1999 through 2002. See IR-2004-5 (1/12/2004). Banister appealed the disbarment to the Secretary of the Treasury, who upheld the disbarment for the advice given to clients but held that there was insufficient evidence introduced at the hearing that Banister had enough income to require income tax returns for the years for which he failed to file returns. Banister could have filed a further appeal to federal District Court, but chose not to.

Based on the Treasury action, the California Board of Accountancy issued an decision revoking Banister’s CPA license on January 26, 2007. Banister has publicly stated that he intends to appeal that decision.

There is also still a possibility of criminal charges against Banister for his own failure to file tax returns.

Eduardo M. Rivera

Eduardo M. Rivera was a lawyer who sold “reliance letters” that people could supposedly rely to avoid criminal penalties for failing to file returns (which Rivera claimed that they were not required to file).

He is no longer a lawyer because he was “ordered inactive” on 3/10/2006, and disbarred effective 8/17/2006. No. S143358 (Ca. Supreme Ct. 7/18/2006).

The United States also sued him in federal court over his sales of his “tax reliance” package, and he was permanently enjoined on July 21,2003. United State v. Eduardo M. Rivera, No. 03-2520 (U.S.D.C. C.D. Cal. 7/21/2003). He didn’t stop, however, and was found to be in criminal contempt on 12/20/2006. United States v. Eduardo Marmolejo Rivera, No. 2:06-cr-00624 (C.D. Ca. 12/20/2006). Rivera has appealed to the 9th Circuit Court of Appeals (No. 07-50090, filed 3/2/2007) and that appeal was still pending when the entry was last edited.

Tommy K. Cryer

Tommy K. Cryer has some fairly good legal credentials, including having graduated with honors from LSU Law School as a member of the Order of the Coif (kind of the legal equivalent of the Phi Beta Kappa honor society). However, he was indicted for tax evasion in 2006 and responded by filing a motion to dismiss that is a classic (84-page) rehash of tax protester nonsense, including that the Internal Revenue Code does not impose any liability, that the I.R.C. does not define “income,” that the 16th Amendment did not give Congress any new power to tax, that the source of income must be determined in order to decide if it is taxable, the section 861 argument, that the federal government cannot tax activities that it cannot regulate, that the income from a person’s own labor is “fundamental right” that cannot be taxed, that compensation for labor is an “equal exchange” that does not result in gain, and that wages are not “income” within the meaning of the 16th Amendment. United States v. Tommy K. Cryer, No. 06-50164-10 (W.D. La. 2/7/2007). In its response, the United States refers to these arguments as “various tax protester claims” and as “pages upon pages of protester arguments that courts have previously rejected and discredited.” Docket #26 (2/15/2007). And the government is right.

Like many others who have joined the tax protester cult, Cryer seems to have a history of emotional and financial problems. In defending himself against a disciplinary complaint that he had neglected a legal matter (for which he received a public reprimand), Cryer claimed to have suffered from depression. The commissioner of the Louisiana State Bar Association concluded during the period in question he had been “on the brink of an emotional breakdown and also in severe financial straits,” and the Louisiana Supreme Court agreed that his “inexplicable behavior” were due to “emotional problems.” Louisiana State Bar Association v. Cryer, 441 S.2d 734, 1983 La. LEXIS 12346 (11/29/1983). Cryer’s financial situation apparently did not improve, because he filed for bankruptcy in 1998. And a web site apparently run by Cryer himself describes his wife, Carolyn, as “severely disabled” (“Welcome to the Lie-Free Zone”). He is therefore someone who has been under a lot of emotional and financial pressures over the years, and seems to have “snapped” and found his refuge in delusions.

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If you’re right, why don’t you claim the $________ reward that [name of tax protester] is offering to anyone who can show [tax protester gibberish] is not correct?

Some professional charlatans make a big show of offering a reward to anyone who can prove that their own brand of gibberish isn’t true. Why hasn’t anyone collected? Because they’ve rigged the offer so that no one can ever collect.

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There are lots of court decisions favorable to tax protesters, but the judges always seal the transcripts, suppress the opinions, or issue “gag orders” against the parties so that the opinions are never published.

Of course, there is no evidence of this nonsense, and it doesn’t even make any sense.

If a judge didn’t want it known that he had ruled in favor of a tax protester, why doesn’t the judge simply rule against the tax protester instead of for him? A decision against a tax protester is easy to justify, based on all of the other court decisions described in this FAQ. A decision for the tax protester goes against all the published decisions by other judges, so why would the judge rule for the tax protester and then keeps the decision a secret? Why would anyone go to so much trouble? And if the judge believes the decision is right, why keep it a secret?

And how does the judge keep the decision a secret from the successful tax protester and keep him from exercising his 1st Amendment right to publicize the decision? Oddly enough, no tax protester has ever claimed to have have his own (favorable) decision sealed; it’s always something that happens in some other case that no one can identify.

It all makes no sense.

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The court decisions against tax protesters are all rendered by ignorant, corrupt judges who have a vested interest in maintaining the status quo because their salaries are paid by the income tax and they are not going to bite the hand that feeds them.

There is absolutely no evidence that any of the rulings described in this FAQ were obtained by corruption. And consider the following:

So, in order to believe that all of the rulings against tax protesters are the result of ignorant, corrupt judges, you must believe that every single judge in the history of the United States has been ignorant or corrupt. That doesn’t sound likely.

The idea that judges have a vested interest in upholding the income tax is equally absurd. Under the Constitution, federal judges are appointed for life and their salaries can never be reduced. So a federal judge is always going to get paid regardless of how the judge rules. If a judge considered only his or her own self-interest, the judge would rule against the income tax, because then the judge would also not be required to pay any taxes and could keep the full amount of the lifetime salary guaranteed by the Constitution.

In short, claims that rulings against tax protesters are tainted by corruption or stupidity are just the whinings of people who refuse to understand that they are wrong.

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The court decisions against tax protesters are all rendered by judges who are afraid of being audited by the IRS and so are afraid to rule against the IRS.

Ridiculous. Judges rule against the IRS all the time, on all sorts of issues. Judges have even fined the IRS and its agents for violating the law. And yet there is no verified instance of any judge ever getting audited by the IRS following a ruling by the judge against the IRS.

In addition, there are known examples of judges being biased against the IRS. The most extreme case was Supreme Court Justice William O. Douglas. During his many years on the U.S. Supreme Court (and he served longer than any other justice in history), Justice Douglas voted against the IRS at almost every opportunity, frequently dissenting (without opinion) from otherwise unanimous decisions. The accepted explanation of this odd voting record is that he was still angry at having once been audited by the IRS. Justice Douglas was a very strong-willed, outspoken man, and if the IRS has ever taken any other actions against him, he would have let the public know about it.

And even if the IRS did audit a judge, what harm could the IRS do? Most judges have little more than their salaries from the government and some investment income. If they report all of their income (as they are required to do) and claim the usual deductions, what can the IRS do? Contrary to what tax protesters think, the IRS can’t just go in and fabricate numbers. There has to be some facts that will justify imposing additional taxes.

Finally, if the IRS did have a vendetta against a judge, and tried to run the judge through the wringer because of it, could you imagine the public outcry that would result if the judge made the story public? It is sometimes suggested that the IRS is too soft in politically sensitive cases, rather than too hard, because the IRS fears a backlash from Congress if it appeared that any audit or other action were politically motivated.

In short, this is just a paranoid delusion.

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The IRS always wins against tax protesters because the IRS only litigates cases against ignorant, ill-prepared defendants it knows it can beat, and it always settles cases against the smart defendants who know how to beat the IRS.

This is a ridiculous assertion. For this claim to be true, the IRS would have to be 100% accurate in assessing whether it will win or lose any given case, and that is impossible.

Furthermore, the IRS has been successful even against the few lawyers and CPAs who have taken up tax protester arguments. (See the cross-references in the “related topics” below.)

Tax protesters lose because they make ridiculous arguments, like those described in this FAQ.

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The taxpayers who have challenged the tax system and lost all lost because they argued their cases badly.

Many of the tax protester arguments presented in this FAQ may seem to be redundant, saying the same things over and over again, using only slightly different words. And they lose regardless of what words they use because it is the argument itself that is wrong, and not just the words used to present it.

Still, tax protesters believe that their positions are correct, and many believe that the tax protester losses are due to “bad arguments.” For example, Lowell H. Becraft, a lawyer who represents tax protesters and has representing the losing taxpayer in many of the decisions cited in this FAQ, has put together a web page listing the “destroyed arguments” that he believes were ruined by the “ill prepared, desperate people” who raised the arguments in court, lost, and so created bad precedents for everyone else.

Like Lowell Becraft, many tax protesters therefore believe that, if the courts do not agree with them, it is only because they have not yet used the right words to explain their positions. So, after a particular argument loses for the twentieth or thirtieth time, one of the less dim bulbs in the tax protester community comes up with a new “formula” with different words, that they then proclaim to be the “real thing.”

This is all a delusion, of course. Tax protesters lose because their basic ideas are ridiculous, contrary to common sense, statutes, and all previous court decisions. Losing a case with a tax protester theory and then trying again with a “better argument” is the legal equivalent of re-arranging the deck chairs after the Titanic has hit the iceberg.

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If Congress really meant for Americans to pay taxes on their earnings, Congress would have changed to law to make it clearer, because then tax protesters would have no choice by to obey the law.

Nonsense.

As shown in this FAQ, tax protesters believe that:

And so forth.

And tax protesters refuse to believe anything that Congress, the IRS, or the courts have said about the tax laws.

In the face of such obstinacy, it is silly to believe that making the law just a little bit clearer would make any difference.

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I would file returns and pay taxes if Congress, the IRS, or the courts would just show me the law that requires me to do so.

Yeah, right.

Tax protesters are regularly shown the law, but they refuse to believe it. There are tax protesters who have met with the IRS and been told why they have to file returns, have been indicted for failing to file returns, have met with lawyers and judges who have told them why they had returns, been convicted by juries of failing to file returns, and have still claimed not to know why they were required to file returns. For example, a taxpayer who claimed to have been researching tax issues for “almost fourteen years,” and had been fighting with the IRS for several years in several courts, still claimed that he had never been directed to a specific taxing statute.

“Although on appeal Mr. Wheeler attempts to persuade the court that he would have willingly paid his taxes if someone had simply directed him to the proper sections of the tax code, a review of the proceedings below shows that Mr. Wheeler is well aware of the relevant tax code provisions but believes they are not applicable to him.”

Charles Raymond Wheeler v. Commissioner, 528 F.3d 773, 2008 TNT 114-13, No. 07-9001 (10th Cir. 6/10/2008), aff’ng T.C. Memo. 2006-109, Nos. 14430-03, 7206-04 (May 22, 2006).

The claim that “I would file returns and pay taxes if they would show me the law” is just another delusion that tax protesters adopt to convince themselves that they are not criminals.

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The number of nonfilers is growing, showing that the number of people who are anti-tax (and anti-IRS) is growing.

Although the IRS does publish statistics from time to time regarding the number of “nonfilers,” and the number is often said to be increasing, it is purely wishful thinking by tax protesters to believe that increasing numbers of people are not filing because of tax protester arguments like the ones presented in this FAQ.

One reason that the number of nonfilers increases from time to time is that income tax exemptions have increased due to Congressional action or inflation, or because incomes have fallen. To the IRS, anyone who receives income and does not file an income tax return is a “nonfiler.” But many people who receive income are not required to file returns because their incomes are too low to require a return. So large numbers of nonfilers are children, the elderly, and the working poor, all of whom may have incomes too small to require a return.

In fact, large numbers of nonfilers not only owe no tax, but are owed refunds. According to a March 19, 2008, press release from the IRS, approximately 1.3 million people failed to file income tax returns for the year 2004 even though they were owed a total of about $1.2 billion in refunds. So it appears that many people who fail to file are simply ignorant or negligent.

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Related (But Non-Tax) Lunacies

There are some other truly bizarre arguments that sometimes show up in tax protester web sites (and occasionally in court) which aren’t exclusively tax arguments, but are worth mentioning.

The tax laws cannot be enforced against citizens in federal courts, because federal courts are “admiralty” or “maritime” courts or (alternative) tax enforcement is governed by admiralty law and can be defeated by properly invoking admiralty procedures.

This nonsense seems to arise out of a misunderstanding of the meaning of “exclusive,” so statements that federal court jurisdiction over maritime litigation is “exclusive” is read as meaning that federal courts can hear only maritime litigation, while what was meant was that maritime litigation can only be heard by federal courts and cannot be heard by state courts. (This claim therefore seems related to the claim that Congressional power is limited to the District of Columbia and other “federal areas,” which arises out of the mistaken belief that the power of Congress to exercise ““exclusive Legislation” means that Congress can legislate only for the District of Columbia, while what was clearly intended was that the power of legislation should be exclusive to Congress and denied to the states.)

As ridiculous as this claim about admiralty law might look, at least one court has taken the time to refute it:

“The Saunders argue that the district court lacked jurisdiction to enforce the summonses. In support of their position, they cite The Glide, 167 U.S. 606, 623-24, 17 S.Ct. 930, 936, 42 L.Ed. 296 (1897), which holds that ‘[t]he maritime and admiralty jurisdiction conferred by the constitution and laws of the United States upon the district courts of the United States is exclusive.’ The Saunders apparently interpret this language as limiting the jurisdiction of federal district courts to admiralty and maritime actions. The Saunders also seem to believe that, by issuing a notice of dishonor under the Uniform Commercial Code, they prevent the IRS from characterizing this case as a contract in admiralty or a maritime action, leaving the district court no basis for jurisdiction.

“The Saunders reading of The Glide founders. In describing the district courts’ maritime and admiralty jurisdiction as ‘exclusive’ the Supreme Court excluded state courts from adjudicating either category of lawsuit. The Court did not, by employing the phrase ‘exclusive,’ delimit the bases of federal jurisdiction. To the contrary, Congress has expressly directed federal district courts to hear tax enforcement matters. See 26 U.S.C. §§ 7402(b), 7604(a); 28 U.S.C. § 1340. We have repeatedly confirmed the authority--indeed, duty--of the district courts to adjudicate tax summons cases such as the one being prosecuted here. See, e.g., United States v. Author Servs., Inc., 804 F.2d 1520, 1525 (9th Cir.1986), amended, 811 F.2d 1264 (9th Cir.1987).”

United States v. Saunders, 951 F.2d 1065 (9th Cir. 1991).

Still, there are many tax protester pleadings referring to admiralty or maritime law, all of which are usually ignored by the courts as simply gibberish.

The claim that “Federal courts may not enforce the internal revenue laws because their jurisdiction is limited to admiralty or maritime cases or issues” 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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If the flag of the United States that is in the courtroom has a gold fringe, then the court is operating under martial law.

There is actually some interesting history behind this nonsense.

There is a federal statute that defines the American flag as thirteen horizontal stripes, alternate red and white, with a “union” of a blue field with one white star for each state. 4 U.S.C. §§ 1 and 2. The statutory definition says nothing about any kind of fringe of the kind often used on ceremonial flags displayed indoors, and at some point someone in the military wondered whether a flag with a fringe was “legal.” In 1925, the Attorney General issued an opinion that a fringe “does not appear to be regarded as an integral part of the Flag, and its presence cannot be said to constitute an unauthorized addition to the design prescribed by statute,” concluding that “The presence, therefore, of a fringe on military colors and standards does not violate any existing Act of Congress. Its use or disuse is a matter of practical policy, to be determined, in the absence of statute, by the Commander in Chief....” 34 Op. Atty. Gen. 483 (May 15, 1925).

Perhaps you can see where this is going? Because the Attorney General expressed the opinion that the President as Commander-in-Chief can put a fringe on military flags, tax protesters have leapt to the conclusion that all flags with fringes are military flags. This idea has been flatly rejected in numerous court decisions. See, e.g., McCann v. Greenway, 952 F. Supp. 647 (W.D. Mo. 1997); United States v. Greenstreet, 912 F.Supp. 224, 229 (N.D.Tex.1996) (“To think that a fringed flag adorning the courtroom somehow limits this Court’s jurisdiction is frivolous.”); Vella v. McCammon, 671 F.Supp. 1128, 1129 (S.D.Tex.1987) (rejecting argument that a federal court lacks jurisdiction to impose penalties for civil and criminal contempt because its flag is fringed); Commonwealth v. Appel, 438 Pa.Super. 214, 652 A.2d 341, 343 (1994) (rejecting argument that a fringed flag in a state courtroom conferred on the court admiralty or maritime jurisdiction).

In Leverenz v. Torluemlu, 1996 WL 272538, at *1 & n. 3 (N.D.Ill. May 20, 1996), the court noted that the complaint named as defendants a judge, a state attorney general, a doctor, several police officers from different communities, and 600 unnamed John and Jane Does and that “[s]ome idea of what is to come is provided by this legend that Leverenz attaches to his ‘Complaint’ heading: “This case is under the jurisdiction of the American flag of peace of the United States of America. No flags of war will serve this case jurisdiction.” (In National Auto. Dealers & Assocs. Retirement Trust v. Arbeitman, 89 F.3d 496, 502 (8th Cir.1996), a later motion in the Leverenz case was described as “bizarre.”)

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In a jury trial, the defendant can ask the jury to decide the validity of the law.

This is sometimes known as “jury nullification,” because the jury is asked to nullify the law by refusing to enforce it.

The principle of jury nullification in the United States is said to go all the way back to the very first Supreme Court, of which John Jay was the Chief Justice.

“It may not be amiss, here, Gentlemen, to remind you of the good old rule, that on questions of fact, it is the province of the jury, on questions of law, it is the province of the court to decide. But it must be observed that by the same law, which recognizes this reasonable distribution of jurisdiction, you have nevertheless a right to take upon yourselves to judge of both, and to determine the law as well as the fact in controversy. On this, and on every other occasion, however, we have no doubt, you will pay that respect, which is due to the opinion of the court: For, as on the one hand, it is presumed, that juries are the best judges of facts; it is, on the other hand, presumable, that the court are the best judges of law. But still both objects are lawfully, within your power of decision.”

State of Georgia v. Brialsford, 3 U.S. (Dallas) 1, 4 (1794).

The accuracy of the above quotation, and the validity of the principle stated within the quotation, has been called into question by the Supreme Court itself in later decisions. For example, in the Sparf case (156 U.S. 51, 64), the court recited the above quotation and then criticized it:

“Of the correctness of this report, Mr. Justice Curtis in U. S. v. Morris, 1 Curt. 23, 58, Fed. Cas. No. 15,815, expressed much doubt, for the reason that the chief justice is reported as saying that, in civil cases, -and that was a civil case,-the jury had the right to decide the law, and because, also, the different parts of the charge conflict with each other; the chief justice, according to the report, saying at the outset that it is the province of the jury to decide questions of fact, and of the court to decide questions of law, and in the succeeding sentence informing the jury that they had the right to take upon themselves the determination of both law and fact. If the chief justice said that it was the province of the court to decide questions of law, and the province of the jury to decide questions of fact, he could not have said that the jury had the right, in a civil case, to judge of and determine both law and fact. ‘The whole case,’ Mr. Justice Curtis said, ‘was an anomaly. It purports to be a trial by jury in the supreme court of the United States of certain issues out of chancery; and the chief justice begins by telling the jury that the facts are all agreed, and the only question is a matter of law, and upon that the whole court were agreed. If it be correctly reported, I can only say it is not in accordance with the views of any other court, so far as I know, in this country or in England, and is certainly not in accordance with the course of the supreme court for many years.’”

Sparf v. United States, 156 U.S. 51, 65 (1895), (“Congress did not intend to invest juries in criminal cases with power arbitrarily to disregard the evidence and the principles of law applicable to the case on trial.”).

In the Sparf opinion, after reviewing opinions in federal courts, state courts, and even English courts and confirming that it is the role of the court to determine the laws that apply to a particular case, and to instruct the jury on the law, and it is the role of the jury to apply that law to the evidence that has been presented and determine the facts of the case, the Supreme Court discussed the problems that would arise in a system in which the jury could determine the law as well as the facts:

“Any other rule than that indicated in the above observations would bring confusion and uncertainty in the administration of the criminal law. Indeed, if a jury may rightfully disregard the direction of the court in matter of law, and determine for themselves what the law is in the particular case before them, it is difficult to perceive any legal ground upon which a verdict of conviction can be set aside by the court as being against law. If it be the function of the jury to decide the law as well the facts,-if the function of the court be only advisory as to the law,- why should the court interfere for the protection of the accused against what it deems an error of the jury in matter of law?

“Public and private safety alike would be in peril if the principle be established that juries in criminal cases may, of right, disregard the law as expounded to them by the court, and become a law unto themselves. Under such a system, the principal function of the judge would be to preside and keep order while jurymen, untrained in the law, would determine questions affecting life, liberty, or property according to such legal principles as, in their judgment, were applicable to the particular case being tried. If because, generally speaking, it is the function of the jury to determine the guilt or innocence of the accused according to the evidence, of the truth or weight of which they are to judge, the court should be held bound to instruct them upon a point in respect to which there was no evidence whatever, or to forbear stating what the law is upon a given state of facts, the result would be that the enforcement of the law against criminals, and the protection of citizens against unjust and groundless prosecutions, would depend entirely upon juries uncontrolled by any settled, fixed, legal principles. And if it be true that a jury in a criminal case are under no legal obligation to take the law from the court, and may determine for themselves what the law is, it necessarily results that counsel for the accused may, of right, in the presence of both court and jury, contend that what the court declares to be the law applicable to the case in hand is not the law, and, in support of his contention, read to the jury the reports of adjudged cases, and the views of elementary writers.”

Sparf v. United States, 156 U.S. 51, 101-102 (1895).

As noted above, the issue of jury nullification usually arises in a criminal prosecution, because it is very difficult for a tax protester to get a jury trial in a civil determination of the taxes owed. There are no juries in Tax Court, and so the only way to get a jury trial is to pay the full amount of the tax determined by the IRS, file an amended return claiming a refund, sue for in federal district court when the refund claim is denied, and demand a jury trial in federal district court. Even then, there will be no jury trial unless there is a dispute as to a material issue of fact. Arguments that are purely legal arguments, such as whether the income tax is constitutional, or whether the money paid by a private employer is “wage” subject to tax, will be decided by the court on a motion for summary judgment and the tax protester will never even see a jury much less get a chance to argue law to the jury.

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A judge must be able to produce a copy of his “oath of office” on demand, and has no jurisdiction without it.

A fantasy that appeals to tax protesters and other nuts who want to make the government jump through hoops, and a fantasy without any basis in fact.

“Conces next challenges the district court’s subject matter jurisdiction over this case, in light of the district judge’s failure to comply with his demand to produce certain “oaths of office.” Yet, the statutes upon which he principally relied in advancing this same jurisdictional challenge in the court below, 5 U.S.C. §§ 2906 and 3331, apply by their terms only to individuals “elected or appointed to an office of honor or profit in the civil service or uniformed services,” 5 U.S.C. § 3331 (emphasis added), and not to judicial officers. See Miller v. Johnson, 541 F. Supp. 1165, 1171 (D.D.C. 1982). While federal judges have an analogous statutory obligation to take an oath before performing the duties of their office, see 28 U.S.C. § 453, nothing in this statute (or elsewhere in the law) requires that a district judge demonstrate to the satisfaction of a litigant in a particular case that he or she has taken this oath. Nor has Conces suggested any reason why a district court’s subject matter jurisdiction over each case on its docket should hinge upon the district judge’s ability or willingness to provide the parties with such proof of his or her compliance with § 453. Accordingly, the district court properly rejected this jurisdictional challenge as frivolous.[Note 13]”

United States v. Charles Conces, No. 07-1343 (11/16/2007), (order of civil contempt affirmed) (Note 13 stated in part: “[W]e understand that other websites in the nether regions of the Internet advocate this same tactic — i.e., demanding that federal judges establish their jurisdiction by producing copies of various oaths — as well as more generally urging litigants, particularly in tax cases, to challenge the authority of federal judges. We do not wish to dignify or draw undue attention to such websites by naming them here. We hope, nonetheless, that our opinion in this case will help speed the demise of this particular ‘urban legend.’”).

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A name that is written all in capital letters (as in a court caption) is not the same as a name written in mixed case (upper and lower case).

Desperate to come up with some reason why they should not be required to defend the lawsuit against them, some nuts argue that the name in the caption in not their name because it is written in all capital letters.

The claim is sometimes that a name that is all capital letters is not the name of the human taxpayer but the name of an artificial entity, sometimes referred to as a “straw man,” which has the same name but which is a separate artificial “juristic person” created by the taxpayer’s birth certificate or other government action.

Some courts have actually addressed this nonsense:

“Defendant Glenn Stinson argues that the case should be dismissed or “quashed” on the grounds that: ... 4) GLENN STINSON and NAOMI STINSON, as spelled in all capital letters in the caption of this case, are “tombstone names,” and therefore, are “nonliving persons” who have never conducted any business in Oklahoma; ....

“Defendant Glenn Stinson purports to be confused as to whether the Government’s complaint in this proceeding is directed at “Glenn Stinson and Naomi Stinson” or against “GLENN STINSON and NAOMI STINSON.” The difference between the fully capitalized and the first-letter capitalized versions of the Defendants’ names is immaterial, and provides no defense to the claims asserted by the Government.”

United States v. Glen H. Stinson et al., 2005 TNT 160-2, No. CIV-03-50-R (U.S.D.C. W.D.Okla. 7/22/2005) (tax assessments reduced to judgment and fraudulent conveyances set aside).

“Plaintiff also contends that the person designated as “MOGI JASON ROFICK” in all capital letters on the IRS notices is a fictitious entity created by the IRS with the purpose of taking title to his property as his name is “Mogi Jason Rofick,” designated by both capital and lower case letters. The Court finds this argument to be frivolous.”

Mogi J. Rofick v. Commissioner, 87 AFTR2d ¶2001-1003, 2001 TNT 112-95, No. 00-CV-74333-DT (U.S.D.C. E.D.Mich. 5/9/2001) (complaint to abate taxes dismissed).

“In his various motions to strike, plaintiff seeks to have the court strike a number of the United States’ filings from the record of this case, on the basis that these filings are ‘directed to a person not a party to this instant case.’ More specifically, plaintiff complains that the United States’ filings have been directed to a person named CRIS TIMOTHY HILLMAN, whose name is spelled in bold, capital letters, in contrast with plaintiff’s name, which is spelled in upper and lower case letters, which are, according to him ‘proper English.’ [Footnote omitted] Plaintiff contends that the person CRIS TIMOTHY HILLMAN ‘is either a dead person or a corporate fiction’ who is not a party to this case.

“To the extent that the mere usage of a boldface font or all capital letters may be considered a misspelling of plaintiff’s name -- a proposition which the court seriously doubts -- it is an error which is purely technical in nature. In some instances, the law will not countenance technical errors. However, the misspelling of a party’s name on a pleading or filing in an action in a United States District Court is not one of those instances. Such an error in this situation must be considered one of form not substance, and assuming that a party receives the document containing the misspelling and realizes it is directed to him, no reason exists not to hold that party to have notice of the document’s contents. Here, plaintiff must have received the documents containing the alleged misspellings, for he has moved to strike them. Because they were sent to his address, contained the case caption, and were identified by the correct case number, the court finds that he must have realized they were directed to him -- how could he not recognize this? In summary, because the manner in which plaintiff’s name is spelled, printed, or punctuated on filings in this case does not, in the court’s view, impact on the substance of the pleadings, the court denies plaintiff’s motions to strike as meritless.”

Cris Timothy, Hillman v. Secretary of Treasury, 85 AFTR2d ¶2000-707, 2000 TNT 111-13, No. 1:99cv136 (U.S.D.C. W.D. Mich. 3/28/2000).

“Wright brings what he has labeled a ‘motion to dismiss for plaintiff’s lack of standing and misjoinder of parties.’ First, he contends that since the amended complaint states that this action is brought against ‘FLOYD A. WRIGHT’ and his name is ‘Floyd A. Wright’, he is not the proper defendant. ... These arguments are patently frivolous and the motion is thus summarily DENIED.”

United States v. Wright, 83 A.F.T.R.2d 99-533, KTC 1998-630, No. S-94-1183 (U.S.D.C. E.D.Cal. 1998), (action by United States to reduce assessed taxes to a judgment against the defendant).

See also, United States v. Furman, 168 F. Supp. 2d 609 (E.D. La. 2001) (rejecting criminal defendant’s contention that he was not properly identified in federal government documents that misspelled his name or used his properly spelled name in all capital letters); United States v. Lindsay, 184 F.3d 1138, 1144 (10th Cir.), cert. denied, 528 U.S. 981 (1999),(affirming a district court decision not to reduce a tax protester’s prison sentence because, among other things, the tax protester claimed not to be the person named in the court documents); Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988) (calling “baseless” defendant’s contention that the indictment must be dismissed because his name, spelled in capital letters, “is a fictitious name used by the government to tax him improperly as a business”); United States v. Washington, 947 F.Supp. 87, 92 (S.D.N.Y. 1996); United States v. Feinstein, 717 F.Supp. 1552, 1557 (S.D.Fla. 1989).

In Rev. Rul. 2005-21, 2005-14 I.R.B. 822, the IRS rejected the claim that there might be a “straw man” separate from the individual taxpayer, and confirmed that arguments concerning the formatting of a taxpayer’s in capital letters are “frivolous” and can result in civil and criminal penalties.

The claim that “[a] taxpayer is not obligated to pay income tax because the government has created an entity separate and distinct from the taxpayer—a ‘straw man’—that is distinguishable from the taxpayer by some variation of the taxpayer’s name, and any tax obligations are exclusively those of the ‘straw man,’ or similar arguments described as frivolous in Rev. Rul. 2005-21, 2005-14 I.R.B. 822“ 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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Putting a comma or colon between your first and last names shows that you are a freeman not subject to governmental authority.

Some of the stranger fringe elements of the tax protest movement actually believe that their legal status changes in some way if they insert additional punctuation within their names.

The most common action is to put a comma between the first and last names, so that “John Smith” becomes “John, Smith.” This kind of nonsense is usually just ignored.

“Plaintiffs have inserted commas between their first and last names. See Complaint. As this punctuation serves no purpose other than obfuscation or evasion to avoid responsibility, standard punctuation is used herein to identify the three named Plaintiffs ...”

Glen D. Bell et al. v. United States, 2002 TNT 105-13, No. CIV F 02-5142, Note 1 (U.S.D.C. E.D.Cal. 4/23/2002) (action to discharge federal tax lien).

However, some cranks have gotten even more creative, inserting hyphens and colons within their names. For example, one Canadian tax protester insists that his name is not “Thomas Joseph Kennedy” but “Thomas-Joseph: Kennedy.”

As one magistrate judge has remarked, “The use of a hyphen or colon (the punctuation mark) in names is typical of tax protester and militia groups.” Audio Investments v. Robertson, 2002 TNT 68-13, Note 2, No. 8:00-2847-20 (U.S.D.C. S.C. 1/25/2002). However, exactly why they do it remains something of a mystery.

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I have copyrighted my name, so no government agency or court can use it without my permission, and I can collect damages from them if they use my name without my permission.

The premise is wrong, because you can’t copyright a mere name, because it’s only two or three words and that is not enough to be protected as an “original work of authorship.” According to the U.S. Copyright Office, which administers federal copyright law, “titles, names, short phrases, and slogans” are among the things that are generally not eligible for copyright protection. See Circular 1, Copyright Basics (U.S. Copyright Office Rev:07/2008).

And the conclusion can’t be right, because it would be ridiculous for a federal law like copyright law to provide a way to block all enforcement of all federal laws.

Only one court reference has been found to this kind of claim. In finding a business owner in contempt of court for willfully violating an injunction ordering him to file and pay employment taxes, the court noted that despite previous monetary sanctions the business owner had continued to file “frivolous documents,” including one that “threatened to charge the Court and the United States $500,000 for using his ‘copyrighted’ name.” United States v. Walter A. Thompson et al., No. S-03-1532-FCD-GGH, 2004 TNT 79-13, n. 13 (U.S.D.C. E.D. Cal. 3/5/2004).

It should also be noted that this argument is the opposite of most other arguments about “federal jurisdiction,” because most other arguments are based on the idea that federal laws don’t apply to you until you take advantage of a federal law or federal program, such as by using a zip code or applying for a Social Security number. But this argument takes the opposition approach and concludes that you can avoid the application of federal laws by applying for rights under another federal law, the copyright law.

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Using zip codes on the mail you send, or accepting mail with zip codes, is what subjects you to federal jurisdiction.

There really do seem to be people who believe that the use of zip codes confers federal jurisdiction where none would otherwise exist, so to remain outside the federal income tax (and other federal laws) it is important not to use zip codes or accept any mail containing a zip code.

One popular text that has been quoted and copied throughout the Internet states:

“It is this writer’s opinion, both as a result of study, e.g. of page 11 of the National Area ZIP Code Directory; of 26 U.S.C. 7621; of Section 4 of the Federal Register, Volume 51, Number 53, of Wednesday, March 19, 1986, Notices at pages 9571 through 9573; of Treasury Delegation Order (TDO) 150-01; of the opinion in United States v. LaSalle National Bank, 437 U.S. 298, 308, 98 S.Ct.2d 2357, 57 L.Ed.2d 221 (1978); of 12 U.S.C. 222; of 31 U.S.C. 103; and as a result of my actual experience, that a ZIP Code address is presumed to create a “Federal jurisdiction” or “market venue” or “revenue districts” that override State boundaries, taking one who uses such modes of address outside of a State venue and its constitutional protections and into an international, commercial venue involving admiralty concerns of the “United States”, which is a commercial corporation domiciled in Washington, D.C.”

Not explained is why accepting any United States mail, with or without zip codes, does not also confer federal jurisdiction. After all, the United States Postal Service is a federal agency and accepting a federal benefit or using a federal government service is what is supposed to trigger federal jurisdiction.

The author is not aware of any court actually taking the time to refute this nonsense.

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I can pay taxes (or other debts) using "bills of exchange" that draw on a Treasury account created with my Social Security number.

There are some claims that are so ridiculous that one feels foolish even writing or talking about them, and this is one of them.

A “bill of exchange” is a real type of negotiable instrument, similar to a check that is drawn on a bank. If tax protesters had submitted bills of exchange to the IRS in payment of taxes and the bills of exchange had been drawn against real bank accounts, there wouldn’t be much of a problem. But tax protesters aren’t drawing against a real account, but a fictitious account that they believe is the result of the government owing them money for some reason.

In one of the more fantastic variations on this theme, it has been claimed that the United States actually went bankrupt in the 1930s and pledged its own citizens as collateral in order to borrow money and keep operating. Each collateralized citizen is now represented by a secret account at the U.S. Treasury, each account is worth hundreds of thousands of dollars, and it is possible to pay taxes and other debts by redeeming money from this account, but only if you use the right forms.

Now read that last paragraph out loud and see if you don’t feel foolish.

In Revenue Ruling 2004-31, 2004-1 C.B. 617, the IRS describes several different variations of these “redemption” claims, and warns of the consequences of acting on these kinds of claims, such as criminal prosecution for tax evasion.

And there are many cases of people acting on this nonsense and being prosecuted.

In United States v. Heath, 525 F.3d 451 (6th Cir. 2008), the defendant sent “registered bills of exchange” that looked like certified check but was drawn on “John W. Snow, Trustee” (Mr. Snow was then Secretary of the Treasury) and was convicted of both willfully attempting to evade the payment of tax and presenting a fictitious financial instrument in violation of er 18 U.S.C. § 514(a). At his trial, Heath described the bill of exchange as a “set off” because “you can ask the Secretary of the Treasury to set up an account for you for the IRS, send this bill to the accountant and the bill off to the bankruptcy in the United States, and they promise to pay the debt, and it is all in the master plan, whatever is in the 1933 bankers act....”

United States v. Anderson, 353 F.3d 490, 500 (6th Cir. 2003), cert. denied, 541 U.S. 1068 (2004) upheld criminal convictions relating to a conspiracy involving the creation and offering of almost 200 fictitious sight drafts purporting to be drawn on the United States Treasury with an aggregate face value of more than $550 million.

In United States v. Oehler, 2003 WL 1824967 (D. Minn. Apr. 2, 2003), aff’d, 116 Fed. Appx. 43 (8th Cir. 2004), the jury convicted Oehler of 30 counts of presenting a fictitious obligation with intent to defraud. As part of his defense, he testified that he believed that every citizen has an account with the United States Treasury containing hundreds of thousands of dollars and that those funds can be accessed using sight drafts drawn on the Treasury.

In November 2008, a federal jury convicted Winfield Thomas and Jeanne Herrington, who promoted bogus “Bills of Exchange,” of conspiracy to impede the IRS. Herrington was also convicted of corruptly interfering with the administration of the internal revenue laws. Thomas and Herrington claimed taxpayers could use the “Bills of Exchange” to pay their tax liabilities. Thomas was sentenced to 30 months imprisonment and three years of supervised release. Herrington was sentenced to 96 months imprisonment and three years of supervised release. See http://www.justice.gov/opa/pr/2009/May/09-tax-532.html.

In August 2009, Rodney K Justin, a North Carolina doctor was convicted of four counts of corruptly obstructing the administration of the internal revenue laws for sending “Bills of Exchange,” fictitious financial instruments, to the IRS as payment for over $350,000 in taxes. See http://www.justice.gov/opa/pr/2009/August/09-tax-879.html

One of the principal promoters of the use of bills of exchange against the IRS was Eddie Ray Kahn, who was enjoined from continuing to sell forms of fictitious instruments. United States v. Eddie Ray Kahn et al., No. 5:03-cv-436-Oc-10GRJ (M.D.Fl. 12/29/2003); http://www.justice.gov/tax/prtax/txdv03730.htm. Later, he was criminally prosecuted and convicted of conspiring to defraud the United States and mail fraud. United State v. Eddie Ray Kahn et al., No. 1:08-cr-00271-RCL-1 (U.S.D.C. D.C. 5/26/2010); http://www.justice.gov/opa/pr/2010/May/10-tax-620.html.

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More About Tax Protesters

A “tax protester” is only someone classified as a “tax protester” by the Internal Revenue Service in accordance with the IRS definition of “tax protester.”

The IRS at one time had an internal policy for the classification of some taxpayers as “tax protesters” with the added criterion of an “ostensible” expression of dissatisfaction with the tax system. The Internal Revenue Manual, Audit, § 4293.11, defined “tax protester” as “any individual who advocates and/or uses a ‘tax protest scheme,’” and defined “tax protest scheme” as “an scheme without basis in law or fact for the ostensible purpose of expressing dissatisfaction with the substance, form, or administration of the tax laws by either interfering with such administration or attempting to illegally avoid or reduce tax liabilities.”

The “illegal tax protester” designation by the IRS was sometimes applied inappropriately, and led to complaints about unduly harsh treatment of taxpayers who were not really protesting or evading taxes. As a result, section 3707 of the Internal Revenue Service Restructuring and Reform Act of 1998, P.L. 105-206, prohibits the officers and employees of the IRS from designating any taxpayer “as illegal tax protesters (or any similar designation).” However, the IRS has taken the position that the act does not prohibit the IRS from maintaining a database of people who file tax returns that have been classified as “frivolous” and subject to the frivolous return penalty under I.R.C. section 6702. See SCA 200107034, 2000 TNT 34-61 (11/15/2000).

So the IRS no longer has any definition of “tax protester.” But the IRS never had authority over the use or application of the English language and the phrase “tax protester” has been commonly applied 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, and continues to be used by the courts to describe those kinds of arguments. (See the discussion of the term “tax protester” at the beginning of this FAQ.)

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What penalties can be imposed on tax protesters?

Believing that the income tax is unconstitutional or invalid is not a crime, and neither is publishing misinformation about the federal income tax. As one court so aptly put it:

“The government may not prohibit the holding of these beliefs, but it may penalize people who act on them.”

Coleman v. Commissioner, 791 F.2d 68, 69 (7th Cir. 1986).

But acting on tax protester beliefs by filing false or frivolous returns, or by failing to file any return at all, can be penalized and the cases against tax protesters usually include one or more of the following civil or criminal penalties:

These penalties are all in addition to the interest that will be imposed on underpayments of tax, and there is also interest on the penalties once the penalty has been assessed.

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Why do tax protesters keep violating the laws, and keep litigating, even after it is clear that they have lost and have no valid arguments?

If the assertions addressed in this FAQ are so ridiculous, why do people believe them?

One answer, and simplest answer, is greed. People would rather have more money than less, and the appeal of not paying income taxes is enough to make at least some people believe almost anything.

The Seventh Circuit made the following observation in one case:

“Some people believe with great fervor preposterous things that just happen to coincide with their self-interest. ‘Tax protesters’ have convinced themselves that wages are not income, that only gold is money, that the Sixteenth Amendment is unconstitutional, and so on. These beliefs all lead--so tax protesters think--to the elimination of their obligation to pay taxes.” Coleman v. Commissioner, 791 F.2d 68, 69 (7th Cir. 1986).

Pure self-centered avarice can explain the initial appeal of tax protester arguments, but why do tax protesters become so mindlessly devoted to their beliefs? In many cases, judges have taken the time in pre-trial conferences to explain to tax protesters that they are totally wrong, and that if they persist with their arguments, the judge will not only rule against them but will sanction them (i.e., impose a fine) for wasting court time with their nonsense. And yet the tax protesters persist. Why?

Why, after losing cases, do tax protesters continue to argue the same claim in a different court? Or why, having lost one case using one preposterous claim, do they switch allegiance to a different preposterous claim and go back into battle with the IRS?

Consider the plight of Lorin Sloan as described by the 7th Circuit Court of Appeals:

“Like moths to a flame, some people find themselves irresistibly drawn to the tax protestor movement’s illusory claim that there is no legal requirement to pay federal income tax. And, like the moths, these people sometimes get burned. Lorin G. Sloan believed these claims and because he acted upon them now faces four months in a federal prison; there can be little doubt that he has been burned.

[. . . .]

“The real tragedy of this case is the unconscionable waste of Mr. Sloan’s time, resources, and emotion in continuing to pursue these wholly defective and unsuccessful arguments about the validity of the income tax laws of the United States. Despite our rejection of Mr. Sloan’s legal analysis of the tax laws, we are not unmindful of the sincerity of his beliefs. On the other hand, we are less sure of the sincerity of the professional tax protestors who promote their views in literature and meetings to persons like Mr. Sloan, yet are unlikely ever to face the type of penalties incurred by him. It may be that our decision will not alter Mr. Sloan’s views regarding the tax laws of this country, for he has stated that if we affirm his conviction without applying the law as he understands it, our decision will be ‘a sham to which I WILL NOT SUBMIT.’ It may also be that serving his sentence in prison will not alter Mr. Sloan’s view. We hope this pessimistic assessment is incorrect.”

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

My own observations of tax protesters lead me to believe that the actions of tax protesters are driven by emotional or psychological needs that are more complicated than simple greed, and that the “arguments” they present to the IRS and the courts are really nothing but elaborate rationalizations (or delusions) that they have constructed in order to avoid a reality that they are unable to accept. Sometimes the unacceptable reality is a sense of personal financial failure. Unable to accept the idea that their own incomes (or the lack thereof) might be the result of their own lack of skill or effort, or a matter of impersonal economics, tax protesters instead decide that the income tax system is the problem and begin finding reasons why it should not exist. In other cases, the unacceptable reality may be a moral or legal failure. An unhappy encounter with the government, such as a bad result in a divorce or a child custody dispute, or even something as minor as a speeding ticket, can lead to a belief that the government is broken, corrupt, or otherwise dysfunctional, which can then lead to a fixation on the federal tax system as symbolic of that dysfunction. In the case of almost every persistent tax protester, there is some personal, financial, or legal trauma or crisis that precedes the tax protester’s obsession with the tax system.

My belief is very well illustrated by the case of Irwin Schiff. Schiff originally sold investments and insurance and became unwittingly involved in a Ponzi scheme which resulted large financial losses for himself and his clients. He became depressed by his business failure and was diagnosed and treated for bipolar disorder. It was only following his business failure that Schiff began developing his theories about the tax laws and began writing his first book about taxes and the government. Schiff has faced the government in court many times, both in criminal prosecutions for his failure to file income tax returns and in civil actions to assess and collect taxes, and Schiff has lost every time. In pleadings filed in federal court, Schiff himself cited this history of failure, as well as the opinions of a lawyer, a psychiatrist, and a psychologist, as evidence that his actions were irrational and the result of a “mental disease or defect,” so that he is unable to act “willfully” within the meaning of the provisions of the Internal Revenue Code relating to tax fraud. “Defendant Irwin A. Schiff’s Opposition to United States’ Motion for Summary Judgment,” United States v. Schiff, No. CV-S-01-0895 (D.C. Nev. 1/21/2004).

So all Schiff needs is treatment? No, as the report of Schiff’s psychologist explains (quoted in the brief in opposition):

“For the most part, personality disorders do not respond to treatment and are believed to be characterological in nature. ... [Schiff’s] belief system is not under voluntary control. Individuals suffering from Delusional Disorder have little or no ability to alter their beliefs. ... In short, Mr. Schiff’s behavior is not rational. It is the product of a Delusional Personality Disorder that is not amenable to treatment and is unlikely to remit.”

The symptoms identified as evidence of Schiff’s mental disease are the same symptoms exhibited by many tax protesters, namely an obsession with the tax laws, an irrational belief in the correctness of their own position despite all evidence to the contrary, and a willingness to go to prison and suffer financial ruin rather than cooperate with the tax system. And, like Schiff, they will not learn from their mistakes, but will argue, and litigate, and go on “fighting” their entire lives, usually ruining their lives in the process. And there is very little than anyone can do about it.

Another example is that of Robert B. Clarkson, a disbarred lawyer who has been convicted and imprisoned three times for tax-related crimes (including preparation of false tax returns and conspiracy to impede the administration of the tax laws), as well as for criminal contempt for continuing to engage in the authorized practice of law. In a recent action by the United States to enjoin Clarkson from any further tax schemes, Clarkson responded to the government’s motion for summary judgment and included a paragraph that questioned his own mental competence.

“8. The DOJ [Department of Justice] knows very well that Clarkson is a mental casualty of the Vietnam War, is unable to cope in a normal society and finds the incessant battles with the beau racy [sic] a form of therapy. They use these facts when it suits their purposes as sending Clarkson to Butner [a federal corrections complex in North Carolina] and justifying their frequent jailing of him. The Veterans Administration has acknowledged that Clarkson has an unusually severe mental problem from his combat experiences and uses some unusual coping mechanisms.”

United States v. Clarkson, No. 8:05cv2734, Entry 59 (U.S.D.C. S.C. 11/14/2006).

Clarkson might simply be trying to evade responsibility for his actions, but he may also be aware that his behavior is not normal.

Lawyers for Robert Kahre have claimed that he suffers from a “mental disease or defect” that would support the conclusion that Kahre has a “good faith belief that he [is] acting in accordance with the law,” negating a conclusion that he acted “willfully.” United States v. Robert David Kahre, No. CR-S-05-0121-RCJ (U.S.D.C. D.Nev. 2/20/2008).

Along similar lines, the Sixth Circuit Court of Appeals has affirmed that tax protester beliefs may be evidence of a mental disability that makes a defendant incompetent to stand trial:

“After his indictment on charges related to tax evasion, Wooten was released on an unsecured bond. He subsequently appeared before the district court when ordered to do so, but his participation in the district court proceedings was defined by his insistence on responding to virtually every question with arcane, pseudo-legal jargon commonly associated with tax protestor literature. He also repeatedly proclaimed his beliefs that the federal government is bankrupt, the Department of the Navy runs the country under Admiralty Law and the Uniform Commercial Code, the Internal Revenue Service is really a foreign debt collector based in Puerto Rico and that Wooten, who lives in Nashville, is not actually a resident of the United States. Wooten also filed volumes of pleadings, many signed only with his thumb print, that the district court found virtually indecipherable. Faced with these abnormalities, the district court, fearing that Wooten might not be competent to assist in his own defense, ordered a competency evaluation.”

United States v. Roy W. Wooten, 2004 TNT 87-15, No. 02-6534 (6th Cir. 4/29/2004), (holding that finding of incompetency was supported by the opinion of a neuropsychologist “as well as the court’s own observations of Wooten throughout the pre-trial proceedings”).

The “symptoms” exhibited by Wooten are the same “symptoms” exhibited by most die-hard tax protesters, and are also similar to the symptoms described for narcissistic personalty disorder:

What the narcissist is unable to work out through fantasy is simply repressed, put out of mind and kept from awareness. Beyond these, narcissists invent alibis, excuses, and “proofs” that seem [to themselves] plausible and consistent, and convince them of their continued stature and perfection. These flimsily substantiated rationalizations are offered with an air of confidence and authority. As noted earlier, however, narcissists may never have learned to be skillful at public deception; they usually said and did what they liked without a care for what others thought. Their poorly conceived rationalizations may, therefore, fail to bring relief and, more seriously, may evoke scrutiny and deprecating comments from others. At these times narcissists may be pushed to the point of employing projection as a defense. Unable to disentangle themselves from lies and inconsistencies, and driven by their need to maintain their illusion of superiority, they may begin to turn against others, accusing the latter of their own deceptions, their own selfishness, and their own irrationalities.

Theodore Millon, Ph.D., “Disorders of Personality; DSM-III: Axis II,” p. 168 (John Wiley & Sons, Inc. 1981).

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Is tax protesting a cult?

Tax protesting certainly seems to have many of the characteristics of a religious cult.

For example, a religious cult usually has at least some of the following characteristics:

However, there are significant differences between religious cults and tax protesting. Most religious cults are founded by charismatic leaders, while the “gurus” of the tax protesting cult are typically as charismatic as a damp dish rag. Most religious cults also impose a very strict standard of thought and conduct, forcing cult members to conform to various aspects of conduct, dress, speech, and thought. However, most tax protesters are inherently anarchistic and have a large number of different—and conflicting—beliefs about exactly why the federal income tax is unconstitutional or inapplicable. Tax protesters are therefore rarely able to form any kind of a cohesive group large enough to call a “cult.”

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The federal income tax is inapplicable, invalid, unenforceable, or unconstitutional because _________________________.

As explained above, most tax protesters are irrational, delusional, or otherwise unable to understand that they are wrong about the tax laws, so when one of their arguments lose, they simply find another argument to reach the same conclusion (that the law is inapplicable, invalid, unenforceable, or unconstitutional).

Even among tax protesters that might have some glimmer of rationality there is a common belief that their positions are correct and that all of the losses in court are due to “bad arguments.” They therefore believe that, if the courts do not agree with them at first, it is only because they have not yet used the right combination of words to explain their argument. So, after a particular claim loses for the twentieth or thirtieth time, one of the less dim bulbs in the tax protester community comes up with a new way of expressing the same idea using different words.

But regardless of the reason, arguing with tax protesters is like playing “whack-a-mole.” As soon as you have slammed down one crazy argument, another one pops its head up.

So this FAQ is not complete, and will never be complete. As you are reading this, some crank with a defective grasp of law, history, economics, and the English language is developing a new reason why the income tax does not apply to him.

(This use of the pronoun “him” is not unconsciously sexist. Most tax protesters are men, which suggests that feminists might be right and women really are smarter than men.)

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Other web sites with information about tax protester arguments.

The following web sites can provide additional information about tax protester arguments and similar legal lunacies. (When known, the name of the author or sponsor of the web page is shown in parentheses.)

According to one estimate, there were about 800 web sites (as of early 2002) promoting tax protester arguments or selling materials that will supposedly help citizens evade income taxes. I’m not providing any links to any of those tax protester sites for the simple reason that I don’t intend to give them any additional publicity. But if you’re curious about whether these people are really as crazy and incoherent as I’ve described them, you can put words like “income tax” and “unconstitutional” in any search engine and turn up several hundred of them.

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