Re: Quotes for the Ignorant Masses

rarebit_at_slipgate.com
Date: 01/18/05 

Date: 17 Jan 2005 21:31:34 -0800

knews4u2c...@yahoo.com wrote:
> rare...@slipgate.com wrote:
> > Here's one you forgot-
> >
> > "knews4u2c is a huge fucking kook." - Ronald Reagan, Just before
he
> > died
>
> "Ad hominem, the first resort of a loser."
> IITUIH2KU

Speaking of losers-

861 losers -

This article provides an abridged version of: (1) the 21 frivolous tax
arguments
made by individuals to avoid paying taxes; (2) the legal authority the
IRS
and the courts use to reject each contention; and (3) the substantial
penalties imposed on taxpayers and promoters for acting on frivolous
positions.
I. The Voluntary Nature of the Federal Income Tax System
Contention #1: The filing of a tax return is voluntary.
Some assert that they are not required to file federal tax
returns because the filing of a tax return is voluntary.
Proponents point to the fact that the IRS itself tells
taxpayers in the Form 1040 instruction book that the tax system
is voluntary. Additionally, the Supreme Court's opinion in
Flora v. United States, 362 U.S. 145, 176 (1960), is
often quoted for the proposition that "[o]ur system of
taxation is based upon voluntary assessment and payment, not
upon distraint."/1/
The Law and Relevant Cases
According to the commissioner, the word "voluntary," as used in Flora
and in
IRS publications, "refers to our system of allowing taxpayers to
determine
the correct amount of tax and complete the appropriate returns, rather
than
have the government determine tax for them."/2/ Both the Internal
Revenue
Code and the regulations make it clear that filing an income tax return
is
not voluntary./3/ larken rose
Numerous court decisions have rejected this contention. The U.S.
Supreme
Court in Helvering v. Mitchell alluded to the significance of
self-assessment when it stated, "In assessing income taxes (on an
annual
basis), the IRS relies primarily upon the disclosure by the taxpayer of
the
relevant facts."/4/
The argument that the tax system is somehow voluntary has been rejected
by
two circuit courts of appeal and the Tax Court. The Tenth Circuit/5/
says
the argument "is incorrect" and the Eighth Circuit/6/ describes the
argument
as "imaginative but totally without arguable merit." The Tax Court
calls the
argument "frivolous" and simply another "tax protester" position./7/
Contention #2: Payment of tax is voluntary.
In a similar vein, some argue that they are not required to pay
federal taxes because the payment of federal taxes is
voluntary. Proponents of this position argue that our system of
taxation is based upon voluntary assessment and
payment./8/
The Law and Relevant Cases
Sections 1, 11 and 6151 of the IRC make it clear that the payment of
federal
taxes is not voluntary. Section 1 imposes a tax for each taxable year
on the
taxable income of individuals, estates and trusts using the tax rate
schedules (section 3 provides tax tables for individuals). Section 11
imposes a tax for each taxable year on the taxable income of
corporations.
Moreover, when a tax return is required to be filed, the obligation to
pay
the tax due is outlined in section 6151. This section requires
taxpayers to
submit payment, without assessment or notice and demand from the
Secretary,
with their tax returns. larken rose
The courts have shown little patience with taxpayers who fail to file
income
tax returns and pay the tax due using tax protestor type arguments.
These
arguments, all rejected by the courts, include (1) the filing of income
tax
returns and the payment of income tax are unconstitutional;/9/ (2)
payment
of taxes is voluntary for American citizens;/10/ and (3) contesting the
obligation to pay taxes on religious grounds./11/ In other words,
simply
disagreeing with the IRC (even though the taxpayer understands what the
Code
says), is not sufficient grounds for failure to file and pay taxes.
Contention #3: The IRS must prepare federal tax returns
for a person who fails to file.
Proponents of this argument contend that Section 6020(b)
obligates the IRS to prepare a federal tax return for a person
who does not file a return. Thus, those who subscribe to this
contention believe that they are not required to file a return
for themselves./12/

The Law and Relevant Cases
Section 6020(b)(1) says the following:
If any person fails to make any return required by any internal
revenue law or regulation made thereunder at the time
prescribed therefore, 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. larken rose
The courts have ruled that Section 6020(b)(1) does not require the IRS
to
prepare tax returns for those who fail to file. The Fifth Circuit has
ruled
twice on this point. In a 1981 case the court stated: "the purpose of
Section 6020(b)(1) is to provide the Internal Revenue Service with a
mechanism for assessing the civil liability of a taxpayer who has
failed to
file a return, not to excuse that taxpayer from criminal liability
which
results from that failure."/13/ Later, in 1984, the court stated that
"Section 6020(b) provides the Secretary with some recourse should a
taxpayer
fail to fulfill his statutory obligation to file a return, and does not
supplant the taxpayer's original obligation to file . . . ."/14/ The
Second
Circuit, in a 1990 decision, agreed with the Fifth Circuit./15/

II. The Meaning of Income: Taxable Income and
Gross Income
Contention #4: Wages, tips and other compensation received
for personal services are not income.
This argument asserts that wages, tips, and other compensation
received for personal services are not income, because there is
allegedly no taxable gain when a person "exchanges"
labor for money. Under this theory, wages are not taxable
income because people have basis in their labor equal to the
fair market value of the wages they receive; thus, there is no
gain to be taxed. Some take a different approach and argue that
the Sixteenth Amendment to the United States Constitution did
not authorize a tax on wages and salaries, but only on gain or
profit./16/
The Law and Relevant Cases
In defining gross income, section 61 takes a very broad perspective.
Gross
income means all income (except as otherwise provided) from whatever
source
derived including compensation for services. Furthermore, reg. section
1.61-1(a) clearly states that gross income includes income realized in
any
form. The constitutionality of a federal income tax is provided in the
Sixteenth Amendment to the Constitution:

The Congress shall have the power to lay and collect taxes on
income from whatever source derived, without apportionment
among the several states, and without regard to any census or
enumeration./17/
The constitutionality of the federal income tax has been consistently
upheld
by the federal court system including the Supreme Court./18/ In fact,
the
argument that wages received are not income should have been laid to
rest as
frivolous and groundless when, in 1990, the Third Circuit stated that
"every
court which has ever considered the issue has unequivocally rejected
the
argument that wages are not income."/19/

Contention #5: Only foreign-source income is taxable.
Some maintain that there is no federal statute imposing a tax
on income derived from sources within the United States by
citizens or residents of the United States. They argue instead
that federal income taxes are excise taxes imposed only on
nonresident aliens and foreign corporations for the privilege
of receiving income from sources within the United States. The
premise for this argument is a misreading of Sections 861,
et seq., and 911, et seq., as well as the
regulations under those sections./20/

The Law and Relevant Cases
As noted above, gross income is defined in section 61 to include all
income
(except as otherwise provided) from whatever source derived including
compensation for services. Furthermore, reg. section 1.1-1(b) states:

Citizens or residents of the United States liable to
tax. 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. As to tax on nonresident alien individuals, see
Sections 871 and 877.
Concerning sections 861 and 911, the IRS takes the position that these
two
sections "define the sources of income (U.S. versus non-U.S.-source
income)
for such purposes as the prevention of double taxation of income that
is
subject to tax by more than one country."/21/

The issue that only foreign-source income is taxable has been addressed
numerous times by the Tax Court, which labels such assertions as
"frivolous"/22/ and "reminiscent of tax-protester rhetoric that has
been
universally rejected by this and other courts."/23/ The Tax Court's
position
is that "source rules (of Sections 861 through 865) do not exclude from
U.S.
taxation income earned by U.S. citizens from sources within the United
States."/24/ In a 1982 decision, the Court of Claims made the following
observation concerning worldwide income: "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 Code Sections 1 and 11, respectively, on their worldwide
income."/25/

Contention #6: Federal Reserve Notes are not income.
Some assert that Federal Reserve Notes currently used in the
United States are not valid currency and cannot be taxed,
because Federal Reserve Notes are not gold or silver and may
not be exchanged for gold or silver. This argument
misinterprets Article 1, Section 10 of the United States
Constitution./26/

The Law and Relevant Cases

The Constitution clearly gives Congress the power "to coin money,
regulate
the value therefore . . . "/27/ and empowers Congress "to declare the
form
of legal tender."/28/ The Supreme Court recognized this power back in
1884
in the Juilliard v. Greenman case:

Under the power to borrow money on the credit of the United
States, and to issue circulating notes for the money borrowed,
its power 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 establish a national currency, either in coin or
in paper, and to make that currency lawful money for all
purposes, as regards the national government or private
individuals./29/
Other courts have consistently stated that this argument has no merit.
The
Eighth Circuit, for example, rejected as clearly frivolous the
assertion
"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."/30/ In a later decision the Eighth Circuit once again stated
that
"Congress has declared federal reserve notes legal tender . . . and . .
.
are taxable dollars."/31/

III. The Meaning of Certain Terms Used in the
Internal Revenue Code

Contention #7: Taxpayer is not a "citizen" of the United
States, thus not subject to the federal income tax laws.
Some individuals argue that they have rejected citizenship in
the United States in favor of state citizenship; therefore,
they are relieved of their federal income tax obligations. A
variation of this argument is that a person is a free born
citizen of a particular state and thus was never a citizen of
the United States. The underlying theme of these arguments is
the same: the person is not a United States citizen and is not
subject to federal tax laws because only United States citizens
are subject to these laws./32/

The Law and Relevant Cases
The Fourteenth Amendment to the Constitution created simultaneous state
and
federal citizenship by providing that "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 wherein they reside."

Claims that taxpayers are not citizens of the United States but solely
citizens of a state have been dismissed summarily by the courts over
the
years. A district court called the taxpayer's claim "linguistic
gymnastics."/33/ The Eleventh Circuit stated the individuals'
contention was
"utterly without merit."/34/ The Eighth Circuit labeled the taxpayer's
argument as "plainly frivolous"/35/ and "based on discredited,
tax-protestor
arguments."/36/ Finally, the Tax Court described the individual's
position
as "baseless and wholly without merit"/37/ and represented an "absurd
proposition."/38/

Contention #8: The "United States" consists only of the
District of Columbia, federal territories, and federal enclaves.

Some argue that the United States consists only of the District
of Columbia, federal territories (e.g., Puerto Rico,
Guam, etc.), and federal enclaves (e.g., American Indian
reservations, military bases, etc.) and does not include the
"sovereign" states. According to this argument, if a
taxpayer does not live within the "United States," as so
defined, he is not subject to the federal tax laws./39/

The Law and Relevant Cases
The IRC imposes a federal income tax upon all U.S. citizens and
residents,
not just those living in Washington, D.C., the federal enclaves within
the
states, and the territories and possessions of the United States. As
previously noted, reg. section 1.1-1(b) provides, "in general, all
citizens
of the United States, wherever resident, and all resident alien
individuals
are liable to the income taxes imposed by Code whether the income is
received from sources within or without the United States."

The Supreme Court, in 1916, recognized that the "sixteenth amendment
authorizes a direct non-apportioned tax upon United States citizens
throughout the nation, not just in federal enclaves."/40/ Contention #8
has
been labeled by the Ninth Circuit as having "no semblance of merit" and
as
representing a "patently frivolous position."/41/ The Eleventh Circuit
called the contention a "twisted conclusion"/42/ and the Tax Court
described
it as "groundless."/43/

Contention #9: Taxpayer is not a "person" as defined
by the Internal Revenue Code, thus is not subject to the federal
income tax laws.

Some maintain that they are not a "person" as defined
by the Internal Revenue Code, and thus not subject to the
federal income tax laws. This argument is based on a tortured
misreading of the Code./44/

The Law and Relevant Cases

Section 7701 defines certain terms that appear many times in different
parts
of the code. According to section 7701(a)(1) the "term 'person' shall
be
construed to mean and include an individual, a trust, estate,
partnership,
association, company or corporation." Furthermore, the term "taxpayer,"
as
defined in section 7701(a)(14) means "any person subject to any
internal
revenue tax."

The contention that an individual is not a "person" under the IRC has
been
"consistently and thoroughly rejected by every branch of the government
for
decades"/45/ as being "frivolous and requiring no discussion."/46/

Contention #10: The only "employees" subject to federal
income tax are employees of the federal government.

Some argue that the federal government can tax only employees
of the federal government; therefore, employees in the private
sector are immune from federal income tax liability. This
argument is based on an apparent misinterpretation of Section
3401, which imposes responsibilities to withhold tax from
"wages." That section establishes the general rule that
"wages" include all remuneration for services performed
by an employee for his employer. Section 3401(c) goes on to
state that the term "employee" includes "an
officer, employee, or elected official of the United States, a
State, or any political subdivision thereof."/47/

The Law and Relevant Cases

Section 7701(c) states that the use of the word "includes" as used in
section 3401(c) "shall not be deemed to exclude other things otherwise
within the meaning of the term defined." As the Seventh Circuit
observed in
commenting on this taxpayer contention, "It is obvious within the
context of
the law 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."/48/ The Tax Court characterized Contention #10 as "nothing
but
tax protester rhetoric and legalistic gibberish."/49/ The First Circuit
said
such a contention "is meritless . . . the statute does not purport to
limit
withholding to the persons listed therein."/50/

IV. Constitutional Amendment Claims

Contention #11: Taxpayers can refuse to pay income taxes on
religious or moral grounds by invoking the First Amendment.

Some argue that taxpayers may refuse to pay federal income
taxes based on their religious or moral beliefs, or objection
to the use of taxes to fund certain government programs. These
persons mistakenly invoke the First Amendment in support of
this frivolous position./51/

The Law and Relevant Cases

Although the First Amendment provides, in part, that "Congress shall
make no
law respecting an establishment of religion, or prohibiting the free
exercise thereof . . . " this does not mean that taxpayers have the
right to
avoid federal income taxes on religious or moral grounds/52/ or because
income taxes are used to finance government programs the taxpayer does
not
agree with./53/ The Supreme Court firmly rejected Contention #11 when
it
ruled in 1982 that:

[T]he broad public interest in maintaining a sound tax system
is of such importance that religious beliefs in conflict with
the payment of taxes provide no basis for refusing to pay, and
stated that "[t]he tax system could not function if
denominations were allowed to challenge the tax system because
tax payments were spent in a manner that violates their
religious belief."/54/

Contention #12: Federal income taxes constitute a "taking"
of property without due process of law, violating the Fifth
Amendment.

Some assert that the collection of federal income taxes
constitutes a "taking" of property without due process
of law, in violation of the Fifth Amendment. Thus, any attempt
by the Internal Revenue Service to collect federal income taxes
owed by a taxpayer is unconstitutional./55/

The Law and Relevant Cases

The U.S. Supreme Court asserted back in 1916 that "it is . . .
well-settled
that the Fifth Amendment (which provides that a person shall not be
'deprived of life, liberty, or property, without due process of law')
is not
a limitation upon the taxing power conferred upon Congress by the
Constitution."/56/ Furthermore, in the same case the Supreme Court goes
on
to say "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 limitations of the due process clause."/57/

There are, moreover, methods available in the IRC that are designed to
safeguard constitutional due process. First, the "refund method" where
a
taxpayer must pay the full tax assessment before being able to file a
refund
suit in a federal district court or the Court of Federal Claims;/58/
and
second, the "deficiency method" where a taxpayer may, without paying a
cent,
petition the Tax Court to redetermine a tax deficiency asserted by the
IRS./59/ Furthermore, the IRS Restructuring and Reform Act of 1998
provides
additional protection for taxpayer's due process rights in collection
matters./60/

Contention #13: Taxpayers do not have to file returns or
provide financial information because of the protection
against self-incrimination found in the Fifth Amendment.

Some argue that taxpayers may refuse to file federal income tax
returns, or may submit tax returns on which they refuse to
provide any financial information, because they believe that
their Fifth Amendment privilege against self-incrimination will
be violated./61/

The Law and Relevant Cases

The U.S. Supreme Court, back in 1927, stated that the taxpayer "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."/62/ In the 1970s two circuit courts of appeal ruled on the
Fifth
Amendment. The Second Circuit said that "the questions in the income
tax
return are neutral on their face . . . hence the Fifth Amendment
privilege
may not be claimed against all disclosure on an income tax return."/63/
In a
Tenth Circuit decision the court noted "that the self-incrimination
privilege can be employed to protect the taxpayer from revealing the
information as to an illegal source of income, but does not protect him
from
disclosing the amount of his income."/64/ The bottom line is clear --
there
is no constitutional right to refuse to file a federal income tax
return.

Contention #14: Compelled compliance with the federal income
tax laws is a form of servitude in violation of the Thirteenth
Amendment.

This argument asserts that the compelled compliance with
federal tax laws is a form of servitude in violation of the
Thirteenth Amendment./65/

The Law and Relevant Cases

The first section of the Thirteenth Amendment reads: "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."/66/ The Tenth Circuit stated that
"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."/67/ The Ninth Circuit agreed with the Tenth when it found
that
there was no merit to the argument that "the record-keeping
requirements and
the requirements that taxpayers shall prepare and file their tax
returns, as
established by the IRC and the IRS . . . amount to involuntary
servitude,
prohibited by the Thirteenth Amendment."/68/

Contention #15: The Sixteenth Amendment to the United States
Constitution was not properly ratified, thus the federal
income tax laws are unconstitutional.

This argument is based on the premise that all federal income
tax laws are unconstitutional because the Sixteenth Amendment
was not officially ratified, or because the State of Ohio was
not properly a state at the time of ratification. This argument
has survived over time because proponents mistakenly believe
that the courts have refused to address this issue./69/

The Law and Relevant Cases

As previously noted, the Sixteenth Amendment provides that "Congress
shall
have the power to lay and collect taxes on income, from whatever source
derived, without apportionment among the several states, and without
regard
to any census or enumeration."/70/ There were a sufficient number of
states
ratifying the Sixteenth Amendment even without Ohio (only three-
fourths of
the states are needed). As the Ninth Circuit stated, "The Secretary of
State's certification under authority of Congress that the Sixteenth
Amendment has been ratified by the requisite number of states and has
become
part of the Constitution is conclusive upon the courts."/71/ Moreover,
the
highest court in the nation (as pointed out earlier) has upheld the
constitutionality of the federal income tax laws passed by Congress
following ratification of the Sixteenth Amendment./72/

Contention #16: The Sixteenth Amendment does not authorize
a direct non-apportioned federal income tax on United States
citizens.

Some assert that the Sixteenth Amendment does not authorize a
direct non-apportioned income tax and thus, U.S. citizens and
residents are not subject to federal income tax
laws./73/

The Law and Relevant Cases

In a 1990 decision, the Tenth Circuit cited a 1916 Supreme Court ruling
in
which the highest court in the nation recognized that the "Sixteenth
Amendment authorizes a direct non-apportioned tax upon United States
citizens through the nation."/74/ The Seventh,/75/ Eighth/76/ and Ninth
Circuits/77/ have all rejected this contention as being patently
frivolous.

V. Fictional Legal Bases

Contention #17: The Internal Revenue Service is not an agency
of the United States.

Some argue that the Internal Revenue Service is not an agency
of the United States but rather a private corporation, because
it was not created by positive law (i.e., an
act of Congress) and that, therefore, the IRS does not have the
authority to enforce the Internal Revenue Code./78/

The Law and Relevant Cases

The IRC provides the statutory support for the establishment of both
the IRS
and the IRS commissioner. Authority for creating the IRS is outlined in
section 7801(a) which states that, "Except as otherwise expressly
provided
by law, the administration and enforcement of this title (i.e., the
IRC)
shall be performed by or under the supervision of the Secretary of the
Treasury. The legitimacy of the IRS was also recognized by the Supreme
Court
when it stated "we bear in mind that the 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."/79/ Moreover, pursuant to
dection
7803(a), the Secretary of the Treasury has the authority to appoint a
commissioner of the IRS who shall carry out the administration and
enforcement of the internal revenue laws.

Contention #18: Taxpayers are not required to file a federal
income tax return, because the instructions and regulations
associated with the Form 1040 do not display an OMB control
number as required by the Paperwork Reduction Act.

Some argue that taxpayers are not required to file tax returns
because of the Paperwork Reduction Act of 1980, 44 U.S.C. section
3501, et seq. ("PRA"). The PRA was enacted to
limit federal agencies' information requests that burden the
public. The "public
protection" provision of the PRA provides that no person
shall be subject to any penalty for failing to maintain or
provide information to any agency if the information collection
request involved does not display a current control number
assigned by the Office of Management and Budget [OMB] Director.
44 U.S.C. section 3512. Advocates of this contention claim that
they cannot be penalized for failing to file Form 1040, because
the instructions and regulations associated with the Form 1040
do not display any OMB control number./80/

The Law and Relevant Cases

Under section 6012(a), a taxpayer with gross income greater than his or
her
standard deduction plus personal exemptions is required to file a
Federal
income tax return annually. The Sixth,/81/ Seventh,/82/ Eighth,/83/
Ninth,/84/ Tenth,/85/ and Eleventh Circuits/86/ have all ruled that a
taxpayer may not use Contention #18 to avoid filing a federal income
tax
return. As the Eleventh Circuit observed, "Congress did not enact the
PRA's
public protection provision to allow OMB to abrogate any duty imposed
by
Congress."

Contention #19: African Americans can claim a special tax credit
as reparations for slavery and other oppressive treatment.

Proponents of this contention assert that African Americans can
claim a so-called "Black Tax Credit" on their federal
income tax returns as reparations for slavery and other
oppressive treatment suffered by African Americans. A similar
frivolous argument has been made that native Americans are
entitled to a credit on their federal income tax returns as a
form of reparations for past oppressive treatment./87/

The Law and Relevant Cases

Although a significant number of tax credits have been enacted into law
in
recent years,/88/ Congress has not provided for a "black tax credit."
Because tax credits (like deductions) are matters of legislative grace,
no
credit may be claimed unless specifically provided for in the IRC. The
courts have been cracking down on tax preparers and promoters of
"slavery
reparations" scams. Recently, the Tax Court ruled that "no provision of
the
IRC allows for a tax credit for slavery reparations and entered an
injunction against an income tax return preparer prohibiting him from
preparing returns or refund claims based on fabricated tax
credits."/89/

Contention #20: Taxpayers are entitled to a refund of the
Social Security taxes paid over their lifetime.

Proponents of this contention encourage individuals to file
claims for refund of the Social Security taxes paid during
their lifetime, on the basis that the claimants have sought to
waive all rights to their Social Security benefits.
Additionally, some advise taxpayers to claim a charitable
contribution deduction as a result of their "gift" of
these benefits or of the Social Security taxes to the United
States./90/

The Law and Relevant Cases

There is no provision in either the Internal Revenue Code or, for that
matter, the United States Code, that provides for a refund of taxes
paid
into the Social Security Trust Fund. Furthermore, the Tax Court has
ruled
that individuals who waive all rights to future Social Security
benefits are
not allowed to claim a charitable contribution deduction./91/

VI. 'Untaxing' Packages or 'Untaxing' Trusts

Contention #21: An "untaxing" package or trust provides
a way of legally and permanently avoiding the obligation to file
federal income tax returns and pay federal income taxes.

Advocates of this idea believe that an "untaxing"
package or trust provides a way of legally and permanently
"untaxing" oneself so that a person would no longer be
required to file federal income tax returns and pay federal
income taxes. Promoters who sell such tax evasion plans and
supposedly teach individuals how to remove themselves from the
federal tax system rely on many of the above-described
frivolous arguments, such as the claim that payment of federal
income taxes is voluntary, that there is no requirement for a
person to file federal income tax returns, and there are legal
ways not to pay federal income taxes./92/

The Law and Relevant Cases

Promoters of these "untaxing" packages, as well as taxpayers who have
purchased them, have been subjected to both criminal and civil
penalties.
Furthermore, action to enjoin promoters of abusive tax shelters is
provided
in section 7408(a), which states:

A civil action in the name of the United States to enjoin any
person from further engaging in conduct subject to penalty
under Section 6700 (relating to penalty for promoting abusive
tax shelters, etc.) or Section 6701 (relating to penalties for
aiding and abetting understatement of tax liability) may be
commenced at the request of the Secretary. Any action under
this section shall be brought in the district court of the
United States for the district in which such person resides,
has his principal place of business, or has engaged in conduct
subject to penalty under Section 6700 or Section 6701.

The courts have found these "untaxing" packages to be nothing more than
fraudulent tax schemes. The Tax Court in quoting a circuit court of
appeal
decision, said that "no reasonable person would have trusted this
scheme to
work."/93/ In its ruling against taxpayers who promoted a "De-Taxing
America
Program," the Seventh Circuit stated:

[W]e conclude that the statements the appellants made in the
Just Say No advertisement were representations concerning the
tax benefits of purchasing and following the De-Taxing America
Program that the appellants reasonably should have known were
false./94/

Moreover, the Eighth and Tenth Circuits concluded that the use of
trusts as
a means of legally and permanently "untaxing" oneself was a sham./95/

Penalties for Pursuing Frivolous Tax Arguments

Both civil and criminal penalties may be imposed on those individuals
who
act on frivolous positions. Interestingly, those taxpayers who do in
fact
act on these positions may get hit harder than those individuals who
are
mere promoters. Using poetic words the Seventh Circuit observed, "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 moths, these people sometimes get
burned."/96/

The IRC contains both accuracy-related and fraud penalties. The
accuracy-related penalty, outlined in section 6662, amounts to 20
percent of
the underpayment attributable to any failure to make a reasonable
attempt to
comply with the tax law or any disregard of rules and regulations. A
civil
fraud penalty is provided for in section 6663 and is equal to 75
percent of
the amount of underpayment attributable to fraud. Furthermore, tax
preparers
who act on frivolous or groundless positions may, like their clients,
be
subject to penalties.

A $ 500 penalty is provided in section 6702 for taxpayers who maintain
a
frivolous position on a return. Congress enacted section 6702 in
response to
the rapid growth of deliberate defiance of the tax laws by tax
protesters.

Moreover, Congress enacted section 6673 to allow the courts to impose a
penalty of up to $ 25,000 for bringing frivolous cases before the
courts.
The purpose of section 6673, as described by the Seventh Circuit, is
to:

[I]nduce litigants to conform their behavior to the
governing rules regardless of their subjective beliefs.
Groundless litigation diverts the time and energies of judges
from more serious claims; it imposes needless costs on other
litigants. Once the legal system has resolved a claim, judges
and lawyers must move on to other things. They cannot endlessly
rehear stale arguments . . . . [T]here is no constitutional
right to bring frivolous suits. . . . People who wish to
express displeasure with taxes must choose other forums, and
there are many available./97/

Section 6673 gives judges considerable clout. The Tax Court recently
imposed
the maximum penalty in Madge v. Commissioner:

[A]fter having warned the taxpayer that continuing with his
frivolous arguments -- that he was not a taxpayer, that his
income was not taxable, and that only foreign income was
taxable -- would likely result in a penalty, the court imposed
the maximum $ 25,000 penalty./98/

In another rather recent decision, the Tax Court imposed stiff
penalties on
both the taxpayer and the taxpayer's attorney in The Nis Family Trust
v.
Commissioner:

[C]oncluding that the Nis chose "to pursue a strategy of
non-cooperation and delay, undertaken behind a smokescreen of
frivolous tax-protester arguments," the court imposed a
$ 25,000 penalty against them, and also imposed sanctions of
more than $ 10,600 against their attorney for arguing frivolous
positions in bad faith./99/

Conclusion

Although "The Truth About Frivolous Tax Arguments" currently addresses
21
frivolous (i.e., groundless) contentions about the legality of not
paying
taxes or filing returns, the list of arguments will surely grow in the
future. Tax protestors who refuse to pay their share of taxes, not
because
they misunderstand the tax laws, but because they disagree with them,
will
continue to offer frivolous arguments based on linguistic gymnastics.
As one
court called them, "imaginative arguments, but totally without arguable
merit." Taxpayers and their advisors (i.e., CPAs and attorneys) need to
understand that not only will the courts rebuke such contentions in the
future, they will continue to impose significant fines and penalties on
taxpayers and their advisors for pursuing frivolous positions.

FOOTNOTES

/1/ "The Truth About Frivolous Tax Arguments" (TTAFTA), p. 4. See also
K.
Misiewicz and J. Wittenbach, "The Judicial Scrutiny of Constitutional
Defenses for Income Tax Non-Compliance," The Review of Taxation for
Individuals, Vol. 5, No. 4 (Autumn 1981), pp. 325-337.

/2/ Id., p. 4.

/3/ Sections 6011(a), 6012(a), et seq. and 6072(a). See also Treasury
Reg.
1.6011-1(a).

/4/ Helvering v. Mitchell, 303 U.S. 391, 399 (1938).

/5/ United States v. Tedder, 787 F.2d 540, 542 (10th Cir. 1986).

/6/ United States v. Richards, 723 F.2d 646, 648 (8th Cir. 1983), and
United
States. v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983).

/7/ Woods. v. Commissioner, 91 T.C. 88, 90 (1988), and Johnson v.
Commissioner, T.C. Memo. 1999-312, 78 T.C.M. (CCH) 468, 471 (1999).

/8/ TTAFTA, p. 5.

/9/ United States v. Bressler, 772 F.2d 287, 291 (7th Cir. 1985).

/10/ Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988), and
United
States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993).

/11/ Packard v. United States, 7 F. Supp.2d 143, 145 (D. Conn. 1998).

/12/ TTAFTA, p. 7.

/13/ United States v. Lacy, 658 F.2d 396, 397 (5th Cir. 1981).

/14/ Moore v. Commissioner, 722 F.2d 193, 196 (5th Cir. 1984).

/15/ Schiff v. United States, 919 F.2d 830, 832 (2nd Cir. 1990).

/16/ TTAFTA, p. 8-9.

/17/ U.S. Constitution Amendment XVI.

/18/ Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-30 (1955),
and
Commissioner v. Kowalski, 434 U.S. 77 (1977).

/19/ United States v. Connor, 898 F.2d 942, 943-44 (3d Cir.), cert.
denied
497 U.S. 1029 (1990).

/20/ TTAFTA, p. 12.

/21/ Id., p. 12.

/22/ Takaba v. Commissioner, 119 T.C. 285 (2002).

/23/ Williams v. Commissioner, 114 T.C. 136, 138 (2000).

/24/ Corcoran v. Commissioner, T.C. Memo. 2002-18, 83 T.C.M. (CCH)
1108,
1110 (2002).

/25/ Great-West Life Assur. Co. v. United States, 678 F.2d 180, 183
(Ct. Cl.
1982).

/26/ TTAFTA, p. 13-14.

/27/ U.S. Constitution, Article 1, Section 8, clause 5.

/28/ U.S. Constitution, Article 1, Section 10.

/29/ Juilliard v. Greenman, 110 U.S. 421, 448 (1884).

/30/ United States v. Daly, 481 F.2d 28, 30 (8th Cir.), cert. denied
414
U.S. 1064 (1973).

/31/ United States v. Rifen, 577 F.2d 1111 (8th Cir. 1978).

/32/ TTAFTA, p. 15.

/33/ O'Driscoll v. IRS, 1991 U.S. Dist. LEXIS 9829, at *5-6 (E.D. Pa.
1991).

/34/ United States v. Ward, 833 F.2d 1538, 1539 (11th Cir. 1987), cert.
denied 485 U.S. 1022 (1988).

/35/ United States v. Sileven, 985 F.2d 962 (8th Cir. 1993).

/36/ United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993).

/37/ Bland-Barclay v. Commissioner, T.C. Memo. 2002-20, 83 T.C.M. (CCH)
1119, 1121 (2002).

/38/ Solomon v. Commissioner, T.C. Memo. 1993-509, 66 T.C.M. (CCH)
1201,
1202-03 (1993).

/39/ TTAFTA, p. 16.

/40/ Brushaber v. Union Pacific R.R., 240 U.S. 1, 12-19 (1916).

/41/ In re Becraft, 885 F.2d 547, 549-50 (9th Cir. 1989).

/42/ United States v. Ward, 833 F.2d 1538, 1539 (11th Cir. 1987).

/43/ Barcroft v. Commissioner, T.C. Memo. 1997-5, 73 T.C.M. (CCH) 1666,
1667.

/44/ TTAFTA, p. 17.

/45/ United States v. Studley, 783 F.2d 934, 937 n. 3 (9th Cir. 1986).

/46/ United States v. Karlin, 785 F.2d 90, 91 (3d Cir. 1986), cert.
denied
480 U.S. 907 (1987).

/47/ TTAFTA, p. 18-19.

/48/ United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985).

/49/ Pabon v. Commissioner, T.C. Memo. 1994-476, 68 T.C.M. (CCH) 813,
816
(1994).

/50/ Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986).

/51/ TTAFTA, p. 20.

/52/ United States v. Ramsey, 992 F.2d 831, 833 (8th Cir. 1993).

/53/ Wall v. United States, 756 F.2d 52 (8th Cir. 1985).

/54/ United States v. Lee, 455 U.S. 252, 260 (1982).

/55/ TTAFTA, p. 21.

/56/ Brushaber v. Union Pacific R.R., 240 U.S. 1, 24 (1916).

/57/ Id.

/58/ Sections 7422(e), 1341, and 1346(a).

/59/ Section 6213(a).

/60/ Pub. L. 105-206, section 3401, 112 Stat. 685, 746.

/61/ TTAFTA, p. 22.

/62/ United States v. Sullivan, 274 U.S. 259, 264 (1927).

/63/ United States v. Schiff, 612 F.2d 73, 83 (2d Cir. 1979).

/64/ United States v. Brown, 600 F.2d 248, 252 (10th Cir. 1979).

/65/ TTAFTA, p. 23.

/66/ U.S. Constitution Amendment XIII.

/67/ Porth v. Brodrick, 214 F.2d 925, 926 (10th Cir. 1954).

/68/ Kasey v. Commissioner, 457 F.2d 369 (9th Cir. 1972).

/69/ TTAFTA, p. 24.

/70/ U.S. Constitution Amendment XVI.

/71/ United States v. Stahl, 792 F.2d 1438, 1441 (9th Cir. 1986).

/72/ Brushaber v. Union Pacific R.R., 240 U.S. 1 (1916).

/73/ TTAFTA, p. 26.

/74/ United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990),
cert.
denied 500 U.S. 920 (1991). See also Brushaber v. Union Pac. R.R., 240
U.S.
1, 12-19 (1916).

/75/ Lovell v. United States, 755 F.2d 517, 518 (7th Cir. 1984).

/76/ Broughton v. United States, 632 F.2d 706 (8th Cir. 1980).

/77/ In re Becraft, 885 F.2d 547 (9th Cir. 1989).

/78/ TTAFTA, p. 26.

/79/ Donaldson v. United States, 400 U.S. 517, 534 (1971).

/80/ TTAFTA, p. 27-28.

/81/ United States v. Wunder, 919 F.2d 34 (6th Cir. 1990).

/82/ Salberg v. United States, 969 F.2d 379 (7th Cir. 1992).

/83/ United States v. Holden, 963 F.2d 1114 (8th Cir.), cert. denied
506
U.S. 958 (1992).

/84/ United States v. Hicks, 947 F.2d 1356, 1359 (9th Cir. 1991).

/85/ Lonsdale v. United States, 919 F.2d 1440, 1445 (10th Cir. 1990).

/86/ United States v. Neff, 954 F.2d 698, 699 (11th Cir. 1992).

/87/ TTAFTA, p. 28-29.

/88/ See sections 21 through 38 and section 53.

/89/ United States v. Foster, 2002-2 U.S.T.C. (CCH) para. 50, 785 (E.D.
Va.
2002).

/90/ TTAFTA, p. 30.

/91/ Crouch v. Commissioner, T.C. Memo. 1990-309, 59 T.C.M. (CCH) 939
(1990).

/92/ TTAFTA, p. 31.

/93/ Robinson v. Commissioner, T.C. Memo. 1995- 102, 69 T.C.M. (CCH)
2061,
2062 (1995). See also Hanson v. Commissioner, 696 F.2d 1232, 1234 (9th
Cir.
1983).

/94/ United States v. Raymond, 228 F.3d 804, 812 (7th Cir. 2000), cert.
denied, 121 S. Ct. 2242 (2001).

/95/ United States v. Krall, 835 F.2d 711 (8th Cir. 1987) and United
States
v. Scott, 37 F.3d 1564 (10th Cir. 1994).

/96/ United States v. Sloan, 939 F.2d 499, 499-500 (7th Cir. 1991).

/97/ Coleman v. Commissioner, 791 F.2d 68, 72 (7th Cir. 1986).

/98/ TTAFTA, p. 52. See Madge v. Commissioner, T.C. Memo. 2000-370, 80
T.C.M. (CCH) 804 (2000).

/99/ TTAFTA, p. 54. See The Nis Family Trust v. Commissioner, 115 T.C.
523,
545-46 (2000).