A Response to the IRS=

AThe Truth About Frivolous Tax Arguments@

(IRS CONTENTIONS AND REBUTTAL THERETO)

By Shawn O’Connor

 

The Voluntary Nature of the Federal Income Tax System

 IRS=s Contention and Opinion: The filing of a tax return is voluntary.

Some taxpayers assert that they are not required to file federal tax returns because the filing of a tax return is voluntary. Proponents of this contention 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 A[o]ur system of taxation is based upon voluntary assessment and payment, not upon distraint.@

 IRS= Opinion of the Law:  

The word Avoluntary,@ 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. The requirement to file an income tax return is not voluntary and is clearly set forth in Internal Revenue Code 6011(a), 6012(a), et seq., and 6072(a). See also Treas. Reg. 1.6011-1(a).    

Any taxpayer who has received more than a statutorily determined amount of gross income is obligated to file a return. Failure to file a tax return could subject the noncomplying individual to criminal penalties, including fines and imprisonment, as well as civil penalties. In United States v. Tedder, 787 F.2d 540, 542 (10th Cir. 1986), the court clearly states, Aalthough Treasury regulations establish voluntary compliance as the general method of income tax collection, Congress gave the Secretary of the Treasury the power to enforce the income tax laws through involuntary collection. . . . The IRS= efforts to obtain compliance with the tax laws are entirely proper.@

 Rebuttal Analysis and Findings:     

The IRS admits that the case of 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.”, simply because it is a true statement which it cannot avoid. Also, the IRS recognizes the fact that the IRS itself tells taxpayers in the Form 1040 instruction book that the tax system is voluntary. However, the IRS continues with the absurd logic that the word voluntary does not mean voluntary but rather the requirement to file an income tax return is not voluntary and is clearly set forth in Internal Revenue Code 6011(a), 6012(a), et seq., and 6072(a). See also Treas. Reg. 1.6011-1(a).

            IRC Section 6011[1] does not require the filing of a return unless there is a liability. Moreover, the requirement to file a return would arise under regulations. To this end, 26 CFR, Regulation 601.602 Tax forms and instructions states that AThe tax system is based on voluntary compliance, and the taxpayers complete and return the forms with payment of any tax owed.@ Thus, compliance with a filing requirement is voluntary, even if you owe a tax. Of course, as Section 6011 points out, you cannot owe a tax until someone is made liable for the tax. Section 6011 does not accomplish this. For example: under Section 5001 of the Code a tax is imposed upon all distilled spirits. Naturally, distilled spirits cannot be made liable for paying a tax, so the code provides for making someone liable to pay the tax imposed. However, from Section 5005 it can be clearly seen that persons such as the distiller, proprietor or possessor of the still is made liable for the taxed imposed under Section 5001. Having now determined what the tax is imposed upon (the liquor), and who is made liable for paying the tax (the manufacturer), we can go to Section 6001 and 6011 wherein it requires everyone made liable to file a return.

The problem encountered is that no section exists which makes one liable for an income tax. As with Section 6011, Section 6012(a)[2] does not create a liability for an income tax either. Rather, Section 6012 merely states that a return shall be made by AEvery individual having for the taxable year gross income which equals or exceeds the exemption amount . . .@ Thus, before a return is required under Section 6012, someone must be made liable for the tax under Section 6011, which would than trigger a voluntary act of filing a return under regulation 601.602 only if the taxable income exceeded the exemption amount found under Section 1512(d) of the Internal Revenue Code, according to Section 6012. And, section 6072(a)[3] deals with the time a return should be filed if one is voluntarily filed. Thus, that section neither deals with establishing a liability nor a filing requirement. Given the above analysis, the IRS= contentions that the above sections establish a filing requirement appear to fly in the face of those sections themselves.

The IRS and Federal Prosecutors have began to introduce the “new idea” that somehow Section 1 of the Internal Revenue Code creates a liability to file a tax Return. But it does not, Section I states, in pertinent part that “There is hereby imposed on the taxable income of—“ and then it continues on to identify those who may have taxable income along with the table of tax rates. There simply is no provision in Section 1 of the IRC which makes one liable for a tax.

In the above-mentioned case, Tedder was a pro se litigant untrained in the tax laws attempting to represent himself in a criminal court without counsel. He was charged with willful failure to file a tax return, which he could not be convicted of if he had a good faith belief that he was not required to file a return. See, Cheek v. United States, 498 U.S. 192 (1991). Tedder did not advance the argument set forth in the above analysis. Moreover, the appellate court gave no consideration to the arguments Tedder did advance; it summarily denied them as Awithout merit.@ This can hardly be deemed a thoughtful and considerate opinion of the Court. Actually, it appears to be nothing more than what it is i.e., a way to dispose of a case the Court does not wish to address nor issues it with which it wishes to deal.

IRS= citation to its Opinion of Relevant Case Law:

Helvering v. Mitchell, 303 U.S. 391, 399 (1938) B the U.S. Supreme Court stated that A[i]n assessing income taxes, the Government relies primarily upon the disclosure by the taxpayer of the relevant facts … in his annual return. To ensure full and honest disclosure, to discourage fraudulent attempts to evade the tax, Congress imposes [either criminal or civil] sanctions.@

United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993), cert. denied, 510 U.S. 1193 (1994) – the court held that “[a]ny assertion that the payment of income taxes is voluntary is without merit.”

United States v. Tedder, 787 F.2d 540, 542 (10th Cir. 1986) B the court upheld a conviction for willfully failing to file a return, stating that the premise Athat the tax system is somehow >voluntary= … is incorrect.@

United States v. Richards, 723 F.2d 646, 648 (8th Cir. 1983) B the court upheld conviction and fines imposed for willfully failing to file tax returns, stating that the claim that filing a tax return is voluntary Awas rejected in United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983), wherein the court described appellant’s argument as >an imaginative argument, but totally without arguable merit.=@

Woods v. Commissioner, 91 T.C. 88, 90 (1988) B the court rejected the claim that reporting income taxes is strictly voluntary, referring to it as a A>tax protester type@ argument, and found Woods liable for the penalty for failure to file a return.

Other Cases:

United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983), cert. denied sub nom., Jameson v. United States, 464 U.S. 642 (1983); United States v. Schulz, 529 F. Supp. 2d 341 (N.D.N.Y. 007), aff’d, 517 F.3d 606 (2d Cir. 2008), cert. denied, 555 U.S. 946 (2008); Johnson v. Commissioner, T.C. Memo. 1999-312, 78 T.C.M. (CCH) 468, 471 (1999), aff’d, 242 F.3d 382 (9th  Cir. 2000).

Rebuttal Analysis and Findings:

The Helvering case did not deal with whether a filing requirement existed under the income tax laws, and Mitchell did not contend to the contrary. The Helvering Court was dealing with tax fraud and whether or not double jeopardy attached as to the imposition of both a civil and criminal penalty in that case. Thus, the issue of whether filing a tax return was voluntary was not an issue before the court. To this end, the case is taken out of context for purposes of this discussion and analysis.

In United States v. Gerads, the Court did not deal with filing of a tax return, but rather the paying of a valid tax assessment. Thus, this case is not relevant to the issue.

The United States v. Tedder case was dealt with herein above.

In Drefke the Court said, ADrefke argues that taxes are debts which can only be incurred 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 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 upon their amount of taxable income. First, 26 U.S.C. does not impose a tax upon every individual as the Court said. The language of Section 1 is clear and states that AThere is hereby imposed on the taxable income of . . .@ Thus, a tax is imposed on taxable income, not on an individual as the Drefke Court erroneously stated. This, in and of itself, indicates that reliance upon the opinion is suspect as the Court=s analysis inaccurately quotes the language of the Internal Revenue Code. In this vein, if Drefke is suspect, so is Richards which relies upon Drefke. Moreover, neither Drefke nor Richards addressed the voluntary nature of filing a tax return as analyzed above. To this end, neither Drefke nor Richards stands as precedence, (and cannot, as lower courts cannot overrule the Supreme Court), against the voluntary compliance nature of the income tax laws as stated by the Supreme Court.

Here again, the Woods Court, which is a tax court case, did not address the above analysis offered by me. In fact, the Woods Court, once again, summarily dismissed the Avoluntary nature@ of our income tax system as being repeatedly rejected, which, of course, given the above, simply is not true. In short, Woods did not propound the Avoluntary nature@ argument; he merely made a naked statement of the income tax system=s voluntary nature, thus the court summarily rejected it. Again, this case wholly fails to explain itself with more than just a summary finding. It is unconscionable that any court would do this especially when the citizen is not represented by counsel, as in this case.

United States v. Schulz was a case brought by the United States to determine if Schulz should be stopped from telling people that they had no legal obligation to withhold income or employment taxes and that they could terminate withholding of federal income and employment taxes. It did not discuss the voluntary nature of filing tax returns.

Again, in Johnson v. Commissioner, the court summarily rejected as frivolous Johnson=s argument regarding the voluntary nature of the income tax system. However, it does not address the analysis as set forth herein by me. Thus, once again, this case, which is unable to explain its opinion, other than Ajust because@ is of no consequence to the issue of the voluntary nature of the tax system.

IRS= Contention and Opinion: 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. They frequently claim that there is no provision in the Internal Revenue Code or any other federal statute that requires them to pay or makes them liable for income taxes, and they demand that the IRS show them the law that imposes  tax on their income. They argue that, until the IRS can prove to these taxpayers’ satisfaction the existence and applicability of the income tax laws, they will not report or pay income taxes.

IRS= Opinion of the Law:

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 taxes is described in section 6151, which requires taxpayers to submit payment with their tax returns. Failure to pay taxes could subject the non-complying individual to criminal penalties, including fines and imprisonment, as well as civil penalties.

In discussing section 6151, the Eighth Circuit Court of Appeals stated in Drefke 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. denied sub nom., Jameson v. United States, 464 U.S. 642 (1983).

There have been no civil cases where the IRS’s lack of response to a taxpayer’s inquiry has relieved the taxpayer of the duty to pay tax due under the law. Courts have in rare instances waived civil penalties because they have found that a taxpayer relied on an IRS misstatement or wrongful misleading silence with respect to a factual matter. Such an estoppel argument does not, however, apply to a legal matter such as whether there is legal authority to collect taxes. See, e.g., McKay v. Commissioner, 102 T.C. 465 (1994), rev’d as to other issues, 84 F.3d 433 (5th Cir. 1996).

Rebuttal Analysis and Findings:

The Service correctly states Section 1, (as opposed to the Drefke Court which conveniently changed the language of Section 1 to fit its analysis), i.e., the income tax is not imposed on individuals, it is imposed on taxable income. Thus, once again, though the tax is imposed on taxable income, no liability is imposed on an individual for the collection or payment of that tax. Section 6151[4] only provides that the tax should accompany a return if a return is required under the regulations. We have already established that the regulations and Supreme Court have determined that filing a tax return is voluntary, regardless of the Service=s unsupported opinion.

IRS= Opinion of the Law (Continued):

In discussing section 6151, the Eighth Circuit Court of Appeals stated that Awhen 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 … tax, a duty which he chose to ignore.@ United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983).

Rebuttal Analysis and Findings:

See above analysis as to the Drefke Court decision, i.e., this case is highly suspect and serves no purpose for the principle of stare decisis or precedent. Moreover, the Court stated that sections of the code imposed a duty on Drefke to file a return, when, in fact, no such duty was imposed upon Drefke as a matter of law. Thus, if no duty was imposed to file a return it follows that no payment was required to be made.

IRS= Opinion of Relevant Case Law:

United States v. Schiff, 379 F.3d 621 (9th Cir. 2004), cert. denied, 546 U.S. 812 (2005); see also http://www.usdoj.gov/tax/txdv04551.htm. – the court affirmed a federal district court’s preliminary injunction barring Irwin Schiff, Cynthia Neun, and Lawrence N. Cohen from selling a tax scheme that fraudulently claimed that payment of federal income tax is voluntary. In subsequent criminal trials, these three individuals were convicted of violating several criminal laws relating to their scheme. See 2005 TNT 206-18. Schiff received a sentence of more than 12 years in prison and was ordered to pay more than $4.2 million in restitution to the IRS; Neun received a sentence of nearly 6 years and was ordered to pay $1.1 million in restitution to the IRS; and Cohen received a sentence of nearly 3 years and was ordered to pay $480,000 in restitution to the IRS. See http://www.usdoj.gov/opa/pr/2006/February/06_tax_098.html.

Adams v. Commissioner, 170 F.3d 173, 181-82 (3d Cir. 1999), cert. denied, 528 U.S. 1117 (2000) – the court affirmed the imposition of penalties for failure to file tax returns and pay tax, as Adams’ religious beliefs—payment of taxes to fund the military is against the will of God—did not constitute reasonable cause for failing to pay taxes.

United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993), cert. denied, 510 U.S. 1193 (1994) – the court stated that the “[taxpayers’] claim that payment of federal income tax is voluntary clearly lacks substance” and imposed sanctions in the amount of $1,500 “for bringing this frivolous appeal based on discredited, tax-protester arguments.”

Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988) – the court rejected Wilcox’s argument that payment of taxes is voluntary for American citizens and imposed a $1,500 penalty against Wilcox for raising frivolous claims.

United States v. Bressler, 772 F.2d 287, 291 (7th Cir. 1985), cert. denied 474 U.S. 1082 (1986), – the court upheld Bressler’s conviction for tax evasion, noting that “[he] has refused to file income tax returns and pay the amounts due not because he misunderstands the law, but because he disagrees with it . . . . [O]ne who refuses to file income tax returns and pay the tax owing is subject to prosecution, even though the tax protester believes the laws requiring the filing of income tax returns and the payment of income tax are unconstitutional.”

United States v. Schulz, 529 F.Supp.2d 341 (N.D.N.Y. 2007), aff’d, 517 F.3d 606 (2d Cir. 2008), cert. denied, 555 U.S. 946 (2008) – the court permanently barred Robert Schulz and his organizations, We the People Congress and We the People Foundation, from promoting a tax scheme that helped employers and employees improperly stop tax withholding from wages on the false premise that federal income taxation is voluntary.

Packard v. United States, 7 F.Supp.2d 143, 145 (D. Conn. 1998), aff’d, 198 F.3d 234 (2d Cir. 1999) – the court dismissed Packard’s refund suit for recovery of penalties for failure to pay income tax and failure to pay estimated taxes where the taxpayer contested the obligation to pay taxes on religious grounds, noting that “the ability of the Government to function could be impaired if persons could refuse to pay taxes because they disagreed with the Government’s use of tax revenues.”

Other Cases:

Schiff v. United States, 919 F.2d 830, 833 (2d Cir. 1990), cert. denied, 501 U.S. 1238 (1991); United States v. Sieloff, 2009 WL 1850197, 104 A.F.T.R.2d (RIA) 2009-5067 (M.D. Fla. Jun. 25, 2009); United States v. Scott, 2009 WL 1439187, 103 A.F.T.R.2d (RIA) 2009-2336 (D.D.C. May 20, 2009); Horowitz v. Commissioner, T.C. Memo. 2006-91, 91 T.C.M. (CCH) 1120; Bonaccorso v. Commissioner, T.C. Memo. 2005-278, 90 T.C.M. (CCH) 554 (2005).

Rebuttal Analysis and Findings:

            None of the above cited cases deal with the voluntary nature of filing tax returns or paying income taxes. The cases merely assert such a position is frivolous without explaining why. Rather the cases deal with the imposition of penalties for various reasons. To this end, almost all of the cases are civil in nature and do nothing more than make a decision that a penalty should be imposed without explaining why the citizen’s opinion is wrong, except for the Bressler case which was criminal case.

The Bressler case did not deal with whether one was required to pay income taxes. Rather, that case dealt with whether Bressler held a good faith belief that he was not required to file tax returns or pay income taxes. It is noted that Bressler is no longer good law as it came from the 7th Circuit in 1985. The 7th Circuit=s various income tax decisions were reversed by the Supreme Court in the Cheek case (1991) which precipitated from the 7th Circuit=s erroneous jury instructions in income tax cases.

Also See, Cheek v. United States, 498 U.S. 192 (1991) A good faith belief that one is not required to file or pay income taxes requires an acquittal. Also see, Keegan v. United States, 325 U.S. 478, 493, 494 (1945). One with innocent motive, who honestly believes a law is unconstitutional and, therefore, not obligatory, may act upon such belief accordingly. If a party with innocent motive fails to follow the requirements of the law he believes is unconstitutional, and such failure to meet the requirements of the law is based upon his innocent motives, then he lacks the essential specific intent required to criminally violate the law. Be aware though that today=s Courts refuse to recognize the holding in Keegan, regardless of the principles of stare decisis and despite the fact that it is a Supreme Court case which was never reversed.

IRS= Opinion of Relevant Case Law (Continued):

Schiff v. United States, 919 F.2d 830, 833 (2d Cir. 1990), cert. denied, 501 U.S. 1238 (1991) B the court rejected Schiff=s arguments as meritless and upheld imposition of the civil fraud penalty, stating A[t]he frivolous nature of this appeal is perhaps best illustrated by our conclusion that Schiff is precisely the sort of taxpayer upon whom a fraud penalty for failure to pay income taxes should be imposed.@

Rebuttal Analysis and Findings:

The Schiff case was a civil case. It dealt with an alleged wrongful levy against Schiff by the IRS. Schiff did not argue he was not required to pay an income tax on the basis of 6151. Rather, Schiff argued that since no assessment was made against him, he was not liable for an income tax. Once again, without considered opinion, the Court summarily rejected Schiff=s position without any plausible explanation, other than, Aso let it be written, so let it be done.@ Schiff does not support the government=s position as to this particular contention.

IRS= Opinion of Relevant Case Law (Continued):

Packard v. United States, 7 F. Supp. 2d 143, 145 (D. Conn. 1998) B the court dismissed Packard’s refund suit for recovery of penalties for failure to pay income tax and failure to pay estimated taxes where the taxpayer contested the obligation to pay taxes on religious grounds, noting that Athe ability of the Government to function could be impaired if persons could refuse to pay taxes because they disagreed with the Government’s use of tax revenues.@

Adams v. Commissioner, 170 F.3d 173, 181-82 (3d Cir. 1999), cert. denied, 528 U.S. 1117 (2000) – the court affirmed the imposition of penalties for failure to file tax returns and pay tax, as Adams’ religious beliefs—payment of taxes to fund the military is against the will of God—did not constitute reasonable cause for failing to pay taxes.

Rebuttal Analysis and Contentions:

These cases are of no consequence, as I have not taken this position. Moreover, the case is irrelevant as to whether or not there is a statutory requirement for me to file income tax returns or pay income taxes.

IRS` Opinion of Relevant Case Law (Continued):

United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993) B the court stated that A[>taxpayers=] claim that payment of federal income tax is voluntary clearly lacks substance@ and imposed sanctions in the amount of $1,500 Afor bringing this frivolous appeal based on discredited, tax protestor arguments.@

Rebuttal Analysis and Findings:

This was a civil case by the government to reduce a tax liability to judgment and recover back taxes from the Gerads. The Gerads= lost a summary judgment proceeding to the government based on a nominee/alter ego theory that a trust held property for the Gerads in which the IRS claimed an interest. Again, the court summarily granted summary judgment to the government, not in a reasoned or clear fashion, but rather simply because the court summarily found that AThe arguments they advanced on appeal are also frivolous.@ Thus, with no more than a declaration of frivolity, the court dismissed the Gerads= claims in favor of the government. Again, the statutory requirements of the Internal Revenue Code were not examined by the Court to determine whether an income tax was owed. Thus, whether one is required to file income tax returns, or pay income taxes, was never addressed by the Court, and as such, the case is of no consequence.

The Meaning of Income: Taxable Income and Gross Income

IRS= Contention: 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 Aexchanges@ 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. A variation of this argument misconstrues section 1341, which deals with computations of tax where a taxpayer restores a substantial amount held under claim of right, to somehow allow a deduction claim for personal services rendered

Rebuttal Analysis and Findings:

In order to accept the IRS= contention, that an individual=s labor has no value, one must accept, as a matter of law and fact, that one has no vested interest in his or her time or labor, i.e., that your time and effort its worthless In Murphy v. United States, Case No. 493 F.3d 170, 179 (D.C. Cir. 2007), the Court said that AAs the Supreme Court noted long ago, the ACongress cannot make a thing income which is not so in fact.@ Burk-Waggoner Oil Ass=n v. Hopkins, 269 U.S. 110, 114 (1925). Indeed, because Athe power to tax involves the power to destroy,@ McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 431 (1819), it would not be consistent with our constitutional government, and the sanctity of property in our system, merely to rely upon the legislature to decide what constitutes income.@ AThe Government of the United States is a government of limited powers: AEvery law enacted by Congress must be based on one or more of its powers enumerated in the Constitution.@ United States v. Morrison, 529 U.S. 598, 607 (2000).@

AThe Supreme Court has held the word Aincomes@ in the Amendment and the phrase Agross income@ in 61(a) of the IRC are coextensive. See Helvering v. Clifford, 309 U.S. 331, 334 (1940) ( 61 represents the Afull measure of [the Congress=s] taxing power@). When it first construed those terms in Eisner v. Macomber, 252 U.S. 189, 207 (1920), the Supreme Court held the taxing power extended to any Again derived from capital, from labor, or from both combined.@ Later, after explaining that Eisner was not Ameant to provide a touchstone to all future gross income questions,@ the Court added that under the IRC — and, by implication, under the Sixteenth Amendment — the Congress may Atax all gains@ or Aaccessions to wealth.@ Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430-31 (1955).@ ABroad though the power granted in the Sixteenth Amendment is, the Supreme Court, as Murphy points out, has long recognized Athe principle that a restoration of capital [i]s not income; hence it [falls] outside the definition of >income= upon which the law impose[s] a tax.@ O=Gilvie, 519 U.S. at 84; see, e.g., Doyle v. Mitchell Bros. Co., 247 U.S. 179, 187-88 (1918); S. Pac. Co. v. Lowe, 247 U.S. 330, 335 (1918) (return of capital not income under IRC or Sixteenth Amendment).@ Thus, it becomes clear that the return for labor in the nature of wages is simply a restoration of capital and not income, i.e., a profit or gain where there has been no human output of labor or capital.

The IRS= Opinion of the Law:

For federal income tax purposes, Agross income@ means all income from whatever source derived and includes compensation for services. I.R.C. 61. Any income, from whatever source, is presumed to be income under section 61, unless the taxpayer can establish that it is specifically exempted or excluded. In Reese v. United States, 24 F.3d 228, 231 (Fed. Cir. 1994) (stating that “an abiding principle of federal tax law is that, absent an enumerated exception, gross income means all income from whatever source derived

Section 1341 and the court opinions interpreting it require taxpayers to return funds previously reported as income before they can claim a deduction under claim of right. To have the right to a deduction, the taxpayer should appear to have an unrestricted right to the income in question. See Dominion Resources, Inc. v. United States, 219 F.3d 359 (4th Cir. 2000).

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. U.S. Const. amend. XVI. Furthermore, the United States Supreme Court upheld the constitutionality of the income tax laws enacted subsequent to ratification of the Sixteenth Amendment. Brushaber v. Union Pacific R.R., 240 U.S. 1 (1916). Since that time, the courts have consistently upheld the constitutionality of the federal income tax. For a further discussion of the constitutionality of the federal income tax laws, see section I.D. of this outline.

All compensation for personal services, no matter what the form of payment, must be included in gross income. This includes salary or wages paid in cash, as well as the value of property and other economic benefits received because of services performed, or to be performed in the future.

Rebuttal Analysis and Findings:

Clearly, compensation for services being a source of income is not gross income. This is because section 61 clearly says that “gross income means all income from whatever source derived” and then goes on to list the following sources: Compensation for Services, including fees, commissions, fringe benefits, and similar items; gain derived from business; interest; rents; royalties; dividends; alimony and separate maintenance payments; annuities; income from life insurance and endowment contracts; pensions; income from discharge of indebtedness; distributive share of partnership income; income in respect of a decedent; and income from an interest in an estate or trust. Hence it appears that compensation for services is not income, but rather the source thereof.

The 16th Amendment expressly exempts the source of income from taxation, To Wit – “”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.” U.S.Const. Amend. XVI. “Income is the thing which may be taxed — income from any source.” Taft v. Bowers, 278 U.S. 470, 481 (1929); See, Stanton v. Baltic Mining Co., 240 U.S. 103, 113 (1916) (“ . . .[W]e are here dealing solely with the restriction imposed by the Sixteenth Amendment on the right to resort to the source whence an income is derived.”) also see, National Paper Co. v. Bowers, 266 U.S. 373, 376 (1924).

Section 63 defines taxable income as gross income minus deductions. The problem is, the statutes have yet to identify what gross income is. They have identified the sources from which gross income can be derived, such as compensation for services, but that doesn’t provide an exact definition of gross income. Section 64 of the Internal Revenue Code is helpful in this respect.

Section 64 basically describes ordinary income as any gain from the sale or exchange of roperty which is neither a capital asset nor property considered to be capital gains or losses under Section 1231(b).

Thus, this is what we have to this point working back to front. Income is a gain from the sale or exchange of property; in other words, one gets more than one gives. Gross income would by necessity include all gains. Taxable income is gross income minus deductions. And finally, compensation for services is a source or capital used to create the gain, not the gain itself.

Beginning with Section 71, to and including Section 90 — which incorporates all income which is specifically included as gross income — it is noted that wages, salaries and compensation for services is not among the items listed as gross income. Now, it appears clear that wages, salaries, and compensation for services are indeed sources, and not the income itself, or they certainly would have been included as income under the code.

From the above analysis it can only be concluded that for purposes of Section 6012(a) that one has no taxable income which would trigger a filing requirement under Section 6012(a) unless income was derived from one of the sources found under Section 61(a), especially without first computing the required exemption amount into the equation under 6012.

IRS= Opinion of Relevant Case Law:

            Cheek v. United States, 498 U.S. 192 (1991) – the Supreme Court reversed and remanded Cheek’s conviction of willfully failing to file federal income tax returns and willfully attempting to evade income taxes solely on the basis of erroneous jury instructions. The Court noted, however, that Cheek’s argument that he should be acquitted because he believed in good faith that the income tax law is unconstitutional “is unsound, not because Cheek’s constitutional arguments are not objectively reasonable or frivolous, which they surely are, but because the [law regarding willfulness in criminal cases] does not support such a position.” Id. On remand, Cheek was convicted on all counts and sentenced to jail for a year and a day. Cheek v. United States, 3 F.3d 1057 (7th Cir. 1993), cert. denied, 510 U.S. 1112 (1994).

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-30 (1955) B referring to the statute’s words Aincome derived from any source whatever,@ the Supreme Court stated, Athis language was used by Congress to exert in this field >the full measure of its taxing power.= … 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.@

United States v. Sloan, 939 F.2d 499, 500 (7th Cir. 1991), cert. denied, 502 U.S. 1060 (1992) – in rejecting the taxpayer’s argument that the revenue laws of the United States do not impose a tax on income, the court recognized the “Internal Revenue Code imposes a tax on all income.”

Commissioner v. Kowalski, 434 U.S. 77 (1977) B the Supreme Court found that payments are considered income where the payments are undeniably accessions to wealth, clearly realized, and over which a taxpayer has complete dominion.

United States v. Connor, 898 F.2d 942, 943-44 (3d Cir.), cert. denied, 497 U.S. 1029 (1990) B the court stated that A[e]very court which has ever considered the issue has unequivocally rejected the argument that wages are not income.@

Lonsdale v. Commissioner, 661 F.2d 71, 72 (5th Cir. 1981) B the court rejected as Ameritless@ the taxpayer’s contention that the Aexchange of services for money is a zero-sum transaction…@

Reading v. Commissioner, 70 T.C. 730 (1978), aff=d, 614 F.2d 159 (8th Cir. 1980) B the court said the entire amount received from the sale of one’s services constitutes income within the meaning of the Sixteenth Amendment.

United States v. Richards, 723 F.2d 646, 648 (8th Cir. 1983) B the court upheld conviction and fines imposed for willfully failing to file tax returns, stating that the taxpayer’s contention that wages and salaries are not income within the meaning of the Sixteenth Amendment is Atotally lacking in merit.@

United States v. Romero, 640 F.2d 1014, 1016 (9th Cir. 1981) B the court affirmed Romero’s conviction for willfully failing to file tax returns, finding, in part, that A[t]he trial judge properly instructed the jury on the meaning of [>income= and >person=]. Romero’s proclaimed belief that he was not a >person= and that the wages he earned as a carpenter were not >income= is fatuous as well as obviously incorrect.@ Abrams v. Commissioner, 82 T.C. 403, 413 (1984) B the court rejected the argument that wages are not income, sustained the failure to file penalty, and awarded damages of $5,000 for pursuing a position that was Afrivolous and groundless … and maintained primarily for delay.@

Cullinane v. Commissioner, T.C. Memo. 1999-2, 77 T.C.M. (CCH) 1192, 1193 (1999) B noting that A[c]ourts have consistently held that compensation for services rendered constitutes taxable income and that taxpayers have no tax basis in their labor,@ the court found Cullinane liable for the failure to file penalty, stating that A[his] argument that he is not required to pay tax on compensation for services does not constitute reasonable cause.@

Stelly v. Commissioner, 761 F.2d 1113, 1115-16 (5th Cir. 1985), cert. denied, 474 U.S. 851 (1985) – the court imposed double costs and attorney’s fees on the taxpayers for bringing a frivolous appeal and rejected the taxpayers’ argument that taxing wage and salary income is a violation of the constitution because compensation for labor is an exchange rather than gain.

Callahan v. Commissioner, 334 F. App’x 754 (7th Cir. 2009) – the court rejected the petitioner’s argument that only “the gain from wages” (not the wages themselves) is taxable and characterized the argument as “beyond frivolous.”

Sumter v. United States, 61 Fed. Cl. 517, 523 (2004) – the court found the taxpayer’s “claim of right” argument “devoid of any merit” and that section 1341 only applies to situations in which the claimant is compelled to return the taxed item because of a mistaken presumption that the right held was unrestricted and, thus, the item was previously reported, erroneously, as taxable income. Section 1341 was inapplicable to Ms. Sumter, because she had a continuing, unrestricted claim of right to her salary income and had not been compelled to repay that income in a later tax year.

Carskadon v. Commissioner, T.C. Memo. 2003-237, 86 T.C.M. (CCH) 234, 236 (2003) – the court rejected the taxpayer’s frivolous argument that “wages are not taxable because the Code, which states what is taxable, does not specifically state that ‘time reimbursement transactions,’ a term of art coined by [taxpayers], are taxable.” The court imposed a $2,000 penalty against the taxpayers for raising “only frivolous arguments which can be characterized as tax protester rhetoric.

Rebuttal Analysis and Findings:

            I will rebut many, but not all of these cases, because the voluminous number of cases are submitted by the IRS for redundancy purposes only, and add nothing to the IRS’ argument.     

            Cheek v. United States, 498 U.S. 192 (1991) was a criminal case. The only question before the Supreme Court was whether Cheek’s sincerely held belief was to be given a subjective or objective analysis. The Supreme Court decided in favor of Cheek and reversed his conviction noting that a person could not be convicted because of his beliefs. The court had no opportunity to pass on the question as to whether wages and salaries or compensation for services were taxable income.

In Reese v. United States, 24 F.3d 228, 231 (Fed. Cir. 1994), the question was whether a punitive damages award was excludable from gross income under section 104(a)(2) of the Code. This case did not address whether wages or salaries were considered taxable income according to the United States Supreme Court=s interpretation of constitutional income for purposes of the income tax.

In Commissioner v. Kowalski, (1977) 434 U.S. 77, the issue before the court was whether cash payments made to police troopers, designated as meal allowances were included in the definition of gross income, 26 U.S.C. Section 61. The issue as to whether wages, salary or compensation for services constituted taxable income was not addressed by the Court. Thus, reliance on the Kowalski case for the proposition that wages, salaries, or compensation for labor is taxable appears to be in error.

The Lonsdale Cases B Lonsdale v. United States, 919 F.2d 1440, 1442 (10th Cir. 1990) (Lonsdale II) and Lonsdale v. Commissioner, 661 F.2d 71(5th Cir. 1981) (Lonsdale I).

In Lonsdale I, Mr. Lonsdale, a pro se litigant, made, by the court=s own admission, extremely broad fractured arguments interwoven with legal and theological arguments which lacked specific facts to consider or support the legal arguments advanced. Thus, the Court=s decision was not based upon any consideration of the facts and, therefore, no appropriate legal analysis could be given by the court. To this end, the Court=s fallacy in its decision is immediately apparent as in Section 61 Congress did not define income, but rather gross income. The Court ignored the legislative history accompanying the passage of Section 61 of the 1954 Internal Revenue Code which specifically stated:

ASection 61(a) provides that gross income includes Aall income from whatever source derived.@ This definition is based upon the 16th Amendment and the word Aincome@ is used in its constitutional sense.@ House Report No. 1337; Senate Report No. 1622; U.S. Code Cong. and Admin. News, 83rd Congress, 2nd Session, pages 4155 and 4802 respectively, 1954.

The United States Supreme Court has provided us with the constitutional definition of income based upon the 16th Amendment which reads C

AIncome may be defined as the gain derived from capital, from labor, or from both combined, provided it include profit gained through a sale or conversion of capital assets.@ Stratton=s Indep. v. Howbert, 231 U.S. 399 (1913); Eisner v. Macomber, 252 U.S. 189 (1920); Merchant=s Loan v. Smietanka, 255 U.S. 509, (1921).

Thus, the failure of the Lonsdale I court to distinguish between Aincome derived from compensation for services@ and Acompensation for services@ renders the Court=s opinion unreliable as precedent for the proposition that wages constitute income. Since Lonsdale II made no specific finding regarding the definition of income, it has no rationale for reliance upon such a principle. In fact, to the extent Lonsdale II relies upon Lonsdale I, it also fails as a precedent as previously explained.

In United State v. Romero, 640 F.2d 1014 (9th Cir. 1981) Mr. Romero represented himself in a failure to file case which was criminal in nature. Mr. Romero=s legal argument at trial for jury instructions are not set forth in the Court of Appeal=s decision, thus any legal analysis of the case by the appellate court was impossible and has no precedential value.

The gratuitous statement on the part of the 9th Circuit in Romero that ACompensation for labor or services, paid in the form of wages or salary, has been universally held by the courts of the republic to be income, subject to the income tax laws currently applicable.@ ignores the fact that the Supreme Court has never directly ruled on this issue. As previously pointed out, the lower courts which have ruled on this have continued to ignore the intent of Congress, the express language of the applicable statutes, and have cited other cases for propositions which are not supported by an analysis of those cases. In fact, Romero does not even attempt to give a legal analysis, but rather cites other cases which do not stand for the proposition that wages constitute income.

            In Knighten v. C.I.R., 702 F.2d 59, (5th Cir. 1983) the Court did not rule that wages constituted income, and hence the case cannot be cited for that proposition. The Court of Appeals found that Knighten=s arguments at trial were difficult to determine with any precision and so were the same points on appeal. The court merely found that Knighten, a pro se litigant, failed to carry his burden in proving the alleged inaccuracies in the Commissioner=s deficiency.

            In Abrams v. Commissioner, 82 T.C. 403, 413 (1984) the Tax Court said that income means all income from whatever source derived including (but not limited to) wages. It includes income realized in any form, whether in money, property, or services. Sec. 61. Income as defined under the 16th Amendment is “gain derived from capital, from labor, or from both combined.” Eisner v. Macomber, 252 U.S. 189, 207 (1920). Section 61 encompasses all realized assessions to wealth. Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). However, then it departed from the Supreme Court=s rulings and found lower Court cases such as United States v. Buras, 633 F.2d 1356, 1361 (9th Cir. 1980), which is fundamentally unsound law when compared to the United States Supreme Court=s ruling on the same subject, controlling. If nothing else, the fundamentals of stare decisis require that the courts adhere to earlier decisions by higher courts. Neal v. United States, 516 U.S. 284, 298 (1996); Arizona v. Rumsey, 467 U.S. 203, 212 (1984) (any departure from the doctrine of stare decisis demands special justification.”); U.S. Ex Rel. Shore v. OLeary, 833 F.2d 663, 667 (7th Cit. 1987). The Buras Court failed to adhere to the Supreme Court=s decisions in this matter.

            In United States v. Richards, 723 F.2d 646, 648 (8th Cir. 1983) the lower court relied upon the Supreme Court in interpreting the term Aincome@ in its every day usage to mean gain derived from capital, from labor, or from both combined. See United States v. Safety Car Heating & Lighting Co., 297 U.S. 88, 99, 56 S.Ct. 353, 358, 80 L.Ed. 500 (1936); Helvering v. Edison Bros. Stores, Inc., 133 F.2d 575, 579 (8th Cir.), cert. denied, 319 U.S. 752, 63 S.Ct. 1166, 87 L.Ed. 1706 (1943). However, regardless of the Richards Court conclusions that wages and salaries fall within this definition and are therefore constitutionally taxable, the Supreme Court did not make such a holding in the Safety Car case. The Safety Car Court explained that AIncome within the meaning of the Sixteenth Amendment is the fruit that is born of capital, not the potency of fruition.@ Thus, neither the investment of capital or the labor is taxable, but merely the income, if any generated from the capital or labor. As set forth above, it is conclusive that wages or salaries are sources of income, not income or taxable income in and of themselves. The IRS= position to the contrary is unfounded when one studies constitutional and Supreme Court law.

IRS= Contention: Only foreign-source income is taxable.

            Some individuals and groups 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.

IRS= Opinion of the Law:

            As stated above, for federal income tax purposes, Agross income@ means all income from whatever source derived and includes compensation for services. I.R.C. 61. Further, Treasury Regulation 1.1-1(b) provides, A[i]n 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.@ I.R.C. sections 861 and 911 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. These sections neither specify whether income is taxable, nor do they determine or define gross income.

IRS= Opinion of the Relevant Case Law:

United States v. Ambort, 405 F.3d 1109 (10th Cir. 2005) – the court affirmed the conviction and 108-month sentence of Ernest G. Ambort for willfully aiding and assisting in the preparation of false income tax returns, specifically the seminars he conducted during which he falsely instructed the attendees that they could claim to be nonresident aliens with no domestic-source income, regardless of place of birth, so that they were exempt from most federal income taxes

Great-West Life Assurance Co. v. United States, 678 F.2d 180, 183 (Ct. Cl. 1982) – the court stated that “[t]he 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 sections 1 and 11, respectively, on their worldwide income.”

Takaba v. Commissioner, 119 T.C. 285, 295 (2002) – the court rejected the taxpayer’s argument that income received from sources within the United States is not taxable income, stating that “[t]he 861 argument is contrary to established law and, for that reason, frivolous.” The court imposed sanctions against the taxpayer in the amount of $15,000, as well as sanctions against the taxpayer’s attorney in the amount of $10,500, for making such groundless arguments.

Corcoran v. Commissioner, T.C. Memo. 2002-18, 83 T.C.M. (CCH) 1108, 1110 (2002), aff’d, 54 F. App’x 254 (9th Cir. 2002), cert. denied, 538 U.S. 1036 (2003) – the court rejected the taxpayers’ argument that their income was not from any of the sources in Treas. Reg. § 1.861-8(f), stating that the “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.” The court further required the taxpayers to pay a $2,000 penalty under section 6673(a)(1) because “they . . . wasted limited judicial and administrative resources.”

Williams v. Commissioner, 114 T.C. 136, 138 (2000) – the court rejected the taxpayer’s argument that his income was not from any of the sources listed in Treas. Reg. § 1.861-8(a), characterizing it as “reminiscent of tax-protester rhetoric that has been universally rejected by this and other courts.”

Other Cases:

Hillecke v. United States, 2009 WL 2015009, 2009-2 U.S.T.C. ¶ 50,481 (D. Or. Jun. 30, 2009); United States v. Thompson, 2009 WL 1531571, 103 A.F.T.R.2d (RIA) 2009-2421 (E.D. Cal. May 28, 2009); Rodriguez v. Commissioner, T.C. Memo. 2009-92, 97 T.C.M. (CCH) 1482 (2009); Madge v. Commissioner, T.C. Memo. 2000-370, 80 T.C.M. (CCH) 804 (2000), aff’d, 23 F. App’x 604 (8th Cir. 2001), cert. denied, 537 U.S. 825 (2002); Aiello v. Commissioner, T.C. Memo. 1995-40, 69 T.C.M. (CCH) 1765 (1995); Solomon v. Commissioner, T.C. Memo. 1993-509, 66 T.C.M. (CCH) 1201, 1202 (1993), aff’d, 42 F.3d 1391 (7th Cir. 1994).

Rebuttal Analysis and Findings:

            This area of law is very complex. Thus, rather than explain it I will rely upon the  Compact Disk created and narrated by Larkin Rose which can be obtained from Larkin Rose or Free Enteprise Society Services.

  IRS= Contentions and Opinions: 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 I, Section 10 of the United States Constitution.

The IRS= Opinion of the Law: Congress is empowered “[t]o coin Money, regulate the value thereof, and of foreign coin, and fix the Standard of weights and measures.” U.S. Const. Art. I, § 8, cl. 5. Article I, Section 10 of the Constitution prohibits the states from declaring as legal tender anything other than gold or silver, but does not limit Congress’ power to declare the form of legal tender. See 31 U.S.C. § 5103; 12 U.S.C. § 411. In an opinion affirming a conviction for willfully failing to file a return and rejecting the argument that Federal Reserve Notes are not subject to taxation, the court stated that “Congress has declared federal reserve notes legal tender . . . and federal reserve notes are taxable dollars.” United States v. Rifen, 577 F.2d 1111, 1112 (8th Cir. 1978).

IRS= Opinion of the Relevant Case Law:

Sanders v. Freeman, 221 F.3d 846, 855 (6th Cir. 2000), cert. denied, 531 U.S. 1014 (2000) – finding that the defendant’s argument “that imposing sales tax on the sale of legal-tender silver and gold coins unconstitutionally interferes with Congress’s exclusive power to coin money is simply untenable,” the court recognized that “most, if not all, of the courts that have considered this issue have held that imposing sales tax on the purchase of gold and silver coins and bullion for cash does not infringe on Congress’s constitutional power to coin and regulate currency.”

United States v. Condo, 741 F.2d 238, 239 (9th Cir. 1984), cert. denied, 469 U.S. 1164 (1985) – the court upheld the taxpayer’s criminal conviction, rejecting as “frivolous” the argument that Federal Reserve Notes are not valid currency, cannot be taxed, and are merely “debts.”

Jones v. Commissioner, 688 F.2d 17 (6th Cir. 1982) – the court found the taxpayer’s claim that his wages were paid in “depreciated bank notes” as clearly without merit and affirmed the Tax Court’s imposition of an addition to tax for negligence or intentional disregard of rules and regulations.

United States v. Rickman, 638 F.2d 182, 184 (10th Cir. 1980) – the court affirmed the conviction for willfully failing to file a return and rejected the taxpayer’s argument that “the Federal Reserve Notes in which he was paid were not lawful money within the meaning of Art. 1, § 8, United States Constitution.”

United States v. Daly, 481 F.2d 28, 30 (8th Cir. 1973), cert. denied, 414 U.S. 1064 (1973) – the court 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” and affirmed Daly’s conviction for willfully failing to file a return.

Rebuttal Analysis and Findings:

            The IRS misstates the argument. Article I, Sec. 8, Clause 2 of the United States Constitution states in pertinent part that: ACongress Shall Have The Power … To coin Money.@ And, in conjunction with Article I, Section 10 states that ANo State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.@ The question is Awhy were these constitutional principles eventually ignored and then abandoned by the government?@[5] The government contends that 12 U.S.C. Section 411 replaced the Constitutional directives under Article I, Sec. 8, Clause 2 and Section 10. But how can that be when the Supreme Court has held that no legislation can supplant Constitutional Law? See, Norton v. Shelby County, 118 US 425, 442, AAn unconstitutional act is not law; it confers no rights; it imposes no duties; affords no protection; it creates no office; it is in legal contemplation, as inoperative as though it had never been passed.@

With the government=s sanctioned mis-understanding that the United States has the power to create money at will and/or assign that power to a private entity, one must wonder what the purpose of taxes is. Query: AIf currency can be created at will, why not just make enough for all necessary federal expenses?@

            So, what is the REAL purpose for federal income taxes? As printed in a news article in American Affairs, entitled ATaxes for Revenue are Obsolete,@ Beardsley Ruml, Chairman of the New York Federal Reserve Bank at a speech to the American Bar Association submitted that given control of a central banking system and an inconvertible currency, the American national government is finally free of money worries and need no longer levy taxes for the purpose of providing itself with revenue. So, again, what is the real purpose of a federal income tax? According to Ruml there are four purposes, none of which are constitutionally sanctioned B To Wit B To express public and financial policy B

1.By stabilizing the purchasing power of the dollar (in other words we print too much money so we must extract the excess spending wealth from the market or face unprecedented inflation).

2. By distributing the wealth by way of a progressive income tax and estate taxes (in other words, take from the people who produce wealth and give to those who refuse to work for a living).

3. By subsidizing or penalizing various industries and economic groups (in other words, control those that would take different points of view than those espoused by the government).

4. By providing for the general welfare and subsidizing social programs such as social security (In other words, as number two above, take from those who produce wealth, and give to those who do not).

            Thus, it would appear that the government=s propensity to ignore their constitutional mandates under the above constitutional commands are merely for political purposes and no others, be it the executive branch, the legislative branch, or the judicial branch. Each work in concert with the other to avoid these constitutional mandates for the Ageneral welfare of the people.@

IRS= Opinion of the Law:

            Congress is empowered A[t]o coin Money, regulate the value thereof, and of foreign coin, and fix the Standard of weights and measures.@ U.S. Const. Art. I, 8, cl. 5. Article I, Section 10 of the Constitution prohibits the states from declaring as legal tender anything other than gold or silver, but does not limit Congress= power to declare the form of legal tender. See 31 U.S.C. 5103; 12 U.S.C. 411. In United States v. Rifen, 577 F.2d 1111 (8th Cir. 1978), the court affirmed a conviction for willfully failing to file a return, rejecting the argument that Federal Reserve Notes are not subject to taxation. ACongress has declared federal reserve notes legal tender … and federal reserve notes are taxable dollars.@ Id. at 1112.

IRS= Opinion of Relevant Case Law:

            Sanders v. Freeman, 221 F.3d 846, 855 (6th Cir. 2000), cert. denied, 531 U.S. 1014 (2000) – finding that the defendant’s argument “that imposing sales tax on the sale of legal-tender silver and gold coins unconstitutionally interferes with Congress’s exclusive power to coin money is simply untenable,” the court recognized that “most, if not all, of the courts that have considered this issue have held that imposing sales tax on the purchase of gold and silver coins and bullion for cash does not infringe on Congress’s constitutional power to coin and regulate currency.”

            United States v. Rickman, 638 F.2d 182, 184 (10th Cir. 1980) B the court affirmed the conviction for willfully failing to file a return and rejected the taxpayer’s argument that Athe Federal Reserve Notes in which he was paid were not lawful money within the meaning of Art. 1, 8, United States Constitution.@     

            United States v. Condo, 741 F.2d 238, 239 (9th Cir. 1984) B the court upheld the taxpayer’s criminal conviction, rejecting as Afrivolous@ the argument that Federal Reserve Notes are not valid currency, cannot be taxed, and are merely Adebts.@

            United States v. Daly, 481 F.2d 28, 30 (8th Cir.), cert. denied, 414 U.S. 1064 (1973) B the court rejected as Aclearly frivolous@ the assertion Athat the only >Legal Tender Dollars= are those which contain a mixture of gold and silver and that only those dollars may be constitutionally taxed@ and affirmed Daly’s conviction for willfully failing to file a return.

            Jones v. Commissioner, 688 F.2d 17 (6th Cir. 1982) B the court found the taxpayer’s claim that his wages were paid in Adepreciated bank notes@ as clearly without merit and affirmed the Tax Court’s imposition of an addition to tax for negligence or intentional disregard of rules and regulations.

Rebuttal Analysis and Findings:

            In United States v. Rickman, 638 F.2d 182, 184 (10th Cir. 1980) the Court said that AFederal income tax is imposed in terms of dollars. 26 U.S.C. Section 1. Thus, regardless of the Court=s interpretation of what a dollar is, the fact is the tax is imposed on taxable income, not on an individual, see position above as to the meaning of taxable income and what it entails. Moreover, in Rickman, the Court completely failed to explain who is made liable for the income tax, and which statute creates such liability.

In United States v. Condo, 741 F.2d 238, 239 (9th Cir. 1984) the 9th Circuit again, without explanation, determined that Condo=s claims were frivolous and therefore opted not to address them except by citation to United States v. Kelley, 539 F.2d 1199 (9th Cir.), cert. denied, 429 U.S. 963, 97 S.Ct. 393, 50 L.Ed.2d 332 (1976); United States v. Gardiner, 531 F.2d 953 (9th Cir.), cert. denied, 429 U.S. 853, 97 S.Ct. 145, 50 L.Ed.2d 128 (1976). The Kelly Court made no such holding that Condo=s arguments were frivolous or wrong. Rather the Kelly Court deferred to the decisions in United States v. Gardiner, 531 F.2d 953 (9th Cir. 1976); and United States v. Wangrud, 533 F.2d 495 (9th Cir. 1976). In Gardiner the Court said that such an argument has been summarily found to be without merit citing to, United States v. Scott, 521 F.2d 1188, 1192 (9th Cir. 1975); cf. Milam v. United States, 524 F.2d 629 (9th Cir. 1974). Thus, neither Kelly nor Gardiner made a holding that federal reserve notes were not taxable as being federal obligations of the United States, rather they deferred to other courts, which leaves us with the Scott, Milam and Wangrud Court opinions. In Wangrud the Court said B AWe publish this opinion solely to make it clear that this argument has absolutely no merit.@ In other words, once again the Court relied upon no precedent which would assure the public that federal reserve notes were not obligations of the United States Government, not subject to taxation. Why? Because there was no legal authority upon which the Court could rely. Thus, this case is of no assistance to the public at large, except on the arbitrary basis that the Court said so!!! That is not good enough for the American People. In this society a court must explain and exemplify its decisions as opposed to making arbitrary and capricious assumptions that have no basis in law. Moving on to the Scott decision, the 9th Circuit had this case before it because an IRS agent working for the government as an under cover agent in a criminal case infiltrated Scott=s defense team to undermine his defense. The Court never reached the issue whether or not federal reserve notes were federal obligations not subject to taxation. And finally, to the Milam case B This was a civil action Milam instituted to demand that his $50.00 Federal Reserve Bank Note be redeemed in “lawful money” of the United States, which he said, in effect, must be gold or silver. Milam refused the United States tender of an equivalent value in Federal Reserve Notes, but demanded gold or silver coin. The Court found that because of 42 U.S.C. Section 12, a federal reserve note was equivalent in value to gold or silver coin(s) which represented the same value, but in metal, not paper. The court relied upon Juilliard v. Greenman, 110 U.S. 421, 448, 4 S.Ct. 122, 130, 28 L.Ed. 204 (1884), in which it was said:

“. . . 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. . . .” [Emphasis supplied.

The obvious problem here is that there is no constitutional authority for Congress to Aissue circulating notes.@ The power does not exist. Congress= power is defined and limited to ATo borrow Money on the credit of the United States@ and to ATo coin Money, regulate the Value thereof.@ Article I, Section 8, Clauses 2 and 5, respectively. Contrary to the Juilliard Court there is no power which can be found in the Constitution under Article 1, Section 8 which allows the government to Aissue circulating notes.@ Thus, the Supreme Court has an opinion which is in conflict with the clear language of the Constitution. How should this contradiction between the government branches and the Constitution be resolved?  As the Supreme Court has stated over and over again, in favor of the citizen.”

The Meaning of Certain Terms Used in the Internal Revenue Code

IRS= Opinions and Contentions: Taxpayer is not a Acitizen@ 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 freeborn 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.

The IRS= Opinion of the Law:

            The Fourteenth Amendment to the United States Constitution defines the basis for United States citizenship, stating that A[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.@ The Fourteenth Amendment therefore establishes simultaneous state and federal citizenship.

IRS= Opinion of Relevant Case Law

United States v. Bowden, 402 F. App’x 967 (5th Cir. 2010) – in denying an appeal of a sentence for tax evasion, the court rejected the taxpayer’s argument that he was a sovereign and not subject to the laws of the United States.

United States v. Drachenberg, 623 F.3d 122 (2d Cir. 2010) – the court affirmed the conviction of Drachenberg for tax evasion and conspiracy to defraud the United States and rejected his argument that the federal courts lacked jurisdiction because he was not a citizen of the United States.

United States v. Hilgeford, 7 F.3d 1340, 1342 (7th Cir. 1993) – the court rejected “shop worn” argument that defendant is a citizen of the “Indiana State Republic” and therefore an alien beyond the jurisdictional reach of the federal courts.

United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993), cert. denied, 510 U.S. 1193 (1994) – the court rejected the Gerads’ contention that they were “not citizens of the United States, but rather ‘Free Citizens of the Republic of Minnesota’ and, consequently, not subject to taxation” and imposed sanctions “for bringing this frivolous appeal based on discredited, tax-protester arguments.”

United States v. Sloan, 939 F.2d 499, 500 (7th Cir. 1991), cert. denied, 502 U.S. 1060, reh’g denied, 503 U.S. 953 (1992) – the court affirmed a tax evasion conviction and rejected Sloan’s argument that the federal tax laws did not apply to him because he was a “freeborn, natural individual, a citizen of the State of Indiana, and a ‘master’ – not ‘servant’ – of his government.”

United States v. Ward, 833 F.2d 1538, 1539 (11th Cir. 1987), cert. denied, 485 U.S. 1022 (1988) – the court found Ward’s contention that he was not an “individual” located within the jurisdiction of the United States to be “utterly without merit” and affirmed his conviction for tax evasion.

Kay v. Commissioner, T.C. Memo. 2010-59 – the court imposed a $500 penalty under section 6673(a) for raising frivolous arguments in the proceeding, including that the petitioner “was not born a [U.S.] taxpayer” and that the United States may not tax him because “the United States is a corporation” to which he holds no “allegiance.”

Other Cases:

Carlson v. Commissioner, T.C. Memo. 2012-76, 103 T.C.M. (CCH) 1408 (2012); United States v. Sileven, 985 F.2d 962 (8th Cir. 1993); O’Driscoll v. IRS, 1991 U.S. Dist. LEXIS 9829, at *5-6 (E.D. Pa. Jul. 16, 1991); Callahan v. Commissioner, T.C. Memo. 2010-201, 100 T.C.M. (CCH) 225 (2010); Rice v. Commissioner, T.C. Memo. 2009-169, 98 T.C.M. (CCH) 40 (2009); Knittel v. Commissioner, T.C. Memo. 2009-149, 97 T.C.M. (CCH) 1837 (2009); Bland-Barclay v. Commissioner, T.C. Memo. 2002-20, 83 T.C.M. (CCH) 1119, 1121 (2002); Marsh v. Commissioner, T.C. Memo 2000-11, 79 T.C.M. (CCH) 1327 (2000), aff’d, 23 F. App’x 874 (9th 2002), cert. denied, 537 U.S. 1029 (2002); Solomon v. Commissioner, T.C. Memo. 1993-509, 66 T.C.M. (CCH) 1201, 1202-03 (1993), aff’d 42 F.3d 1391 (7th Cir. 1994).

Rebuttal Analysis and Findings:

            While I recognize that the 14th Amendment was never ratified, See, Dyett v. Turner, 20 Utah 2nd 403; 439 Pac. Rep. 2nd 266, and the Law Review by Judge L. H. Perez, and the history behind the alleged ratification, I do not disclaim dual State and United States Citizenship which existed at the time the Constitution was penned. I maintain I have dual citizenship as to the federal and state governments. The only argument I maintain is whether the United States Government operates outside its specifically delegated power as enumerated within Article I, Section 8. I maintain that the federal government does operate outside of its specific delegated authority on a regular basis.

IRS= Opinions and Contention: The AUnited 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 Asovereign@ states. According to this argument, if a taxpayer does not live within the AUnited States,@ as so defined, he is not subject to the federal tax laws.

Rebuttal Analysis and Findings:

            The term AUnited States@ in many cases is a legal term of art. For example, there are around 3,436 instances of the use of the term AUnited States@ within the Internal Revenue Code. In very many of these instances the Code refers to both the United States and the States separately and independently of each other. Query? If the term AUnited States@ when used in the Internal Revenue Code always meant the 50 states, why would the Code specifically refer to both terms AUnited States@ and AStates@ in the same sentence, for example, Sections 50, 51, 72, 85, 108, 126, 151, 170, 2106, 2511, ad nauseum? The foregoing list is endless as to where in the Internal Revenue Code the term AUnited States@ is used in conjunction with the term AState,@ thereby making it grammatically impossible to assume when the term AUnited States@ is used that it means, at the same time, the 50 States.

Set forth herein below is a very short list of some of the definitions of the term AUnited States@ found within the Code, To Wit B

Section 638(1) the term “United States” when used in a geographical sense includes the seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the United States and over which the United States has exclusive rights, in accordance with international law, with respect to the exploration and exploitation of natural resources;

Section 217(h)(3) United States defined. For purposes of this subsection and subsection (i), the term “United States” includes the possessions of the United States.

Section 3121(e)(2) The term ”United States” when used in a geographical sense

includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.

            Thus, it appears that within the Internal Revenue Code, the term AUnited States@ is defined and redefined in order to give meaning to each specific section of the internal revenue code and its geographical application. Legislation is presumptively territorial and confined to limits over which the law-making power has jurisdiction. American Banana Co. v. United Fruit Co. 213 U.S. 347, 357; Sandberg v. McDonald, 248 U.S. 185, 195 (1918). Thus, when the Internal Revenue Code defines the term AUnited States@, or AState@ in a geographical sense, it means what it says.

IRS= Opinion of the Law:    

            The Internal Revenue Code imposes a federal income tax upon all United States citizens and residents, not just those who reside in the District of Columbia, federal territories, and federal enclaves. The United States Supreme Court has “recognized that the sixteenth amendment authorizes a direct nonapportioned tax upon United States citizens throughout the nation, not just in federal enclaves.” United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990) (citing Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916)), cert. denied, 500 U.S. 920 (1991).

Rebuttal Analysis and Findings:

            The Collins Court opinion is in error.[6] In Brushaber the Supreme Court held that the Sixteenth Amendment was an indirect tax not requiring apportionment, but rather falling under the rule of uniformity as an indirect tax. Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916). This is further confirmed in the Supreme Court Decision of Stanton v. Baltic Mining Co., 240 U.S. 103, 112-13 (1916) the same year the Supreme Court decided Brushaber. In Stanton the Supreme Court made clear what it said in Brushaber, and it held 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….”

            It can only be then that since the income tax is an indirect tax it is subject to the rule of uniformity pursuant to Article 1 Section 8 of the United States Constitution which explains that all Duties, Imposts and Excises shall be uniform throughout the United States. Duties, Imposts and Excises are indirect taxes.

IRS= Opinion of Relevant Case Law:

            United States v. Cooper, 170 F.3d 691, 691 (7th Cir. 1999) – the court sanctioned defendant for filing a frivolous appeal wherein he argued that only residents of Washington, D.C. and other federal enclaves are subject to the federal tax laws because they alone are citizens of the United States.

United States v. Mundt, 29 F.3d 233, 237 (6th Cir. 1994) – the court rejected the “patently frivolous” argument that defendant was not a resident of any “federal zone” and therefore not subject to federal income tax laws.

In re Becraft, 885 F.2d 547, 549-50 (9th Cir. 1989) – the court imposed monetary damages on Becraft, an attorney, based on his advocacy of frivolous claims, such as that federal laws apply only to United States territories and the District of Columbia, which the court found had “no semblance of merit.”

United States v. Ward, 833 F.2d 1538, 1539 (11th Cir. 1987), cert. denied, 485 U.S. 1022 (1988) – the court rejected as a “twisted conclusion” the contention “that the United States has jurisdiction over only Washington, D.C., the federal enclaves within the states, and the territories and possessions of the United States,” and affirmed a conviction for tax evasion.

Wnuck v. Commissioner, 136 T.C. 498 (2011) – the court described in detail why this argument (based on a misreading of an employment tax provision that includes Puerto Rico, the Virgin Islands, Guam, and American Samoa within the term “United States”) is frivolous and imposed a $5,000 penalty under section 6673 for maintaining this and other frivolous arguments.

Other Cases:

Holmes v. Commissioner, T.C. Memo. 2010-42, 99 T.C.M. (CCH) 1165 (2010); Barcroft v. Commissioner, T.C. Memo. 1997-5, 73 T.C.M. (CCH) 1666, 1667 (1997).

Rebuttal Analysis and Findings:     

            See ARebuttal Analysis and Findings@ above. A fair reading of each of the cases cited by the IRS above does not stand for the proposition that the government has exceeded its federal legislative jurisdiction as none of the Courts addressed the proposition. As the IRS points out, the courts merely declared the argument frivolous without any intelligent discussion or findings. Thus, it would appear it is an issue the Courts choose not to deal with and therefore summarily labeled the issue frivolous and imposed fines for raising the issue in hopes that it will no longer come before the courts or the public. To better understand this argument one must understand that the federal government can lay only two types of taxes: direct and indirect taxes. A[I]n the sense of the Constitution, taxes are divided into two classesCdirect, and indirect. Under the former are taxes on real property; and under the latter are taxes on articles of consumption: 5 Wheat. 317.@ Union Bank v. Hill, 43 Tenn. 325 (1866). Direct taxes are governed by the rule of apportionment, and indirect taxes are governed by the rule of geographical uniformity. United States Constitution Article 1, Section 9 and Article 1, Section 8, respectively. However, these rules only apply within the 50 states of the union. Outside the 50 states, the federal government is free to impose taxes subject or not to rules it sees fit. Thus, one must wonder that “If the income tax is being imposed as a direct tax not subject to apportionment, nor any other rule, where does Congress obtain the legislative authority to enact and impose such a tax?” It cannot be within the 50 states of the union as any tax imposed therein must either be apportioned or governed by the rule of uniformity. There are no exceptions, as previously pointed out. Thus, it is logical that when the term AUnited States@ is defined within the code for purposes of imposing a direct tax without apportionment, the term must mean either Washington, D.C. and/or its enclave and/or possessions; and, the 50 states of the union must be, by constitutional necessity, excepted from said definitions. If it were otherwise it would stand the Constitution, the 16th Amendment and the Supreme Court decisions on their respective heads.

IRS= Opinion and Contention: Taxpayer is not a Aperson@ as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws.           

            Some maintain that they are not a Aperson@ 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.

IRS= Opinion of the Law:

            The Internal Revenue Code clearly defines Aperson@ and sets forth which persons are subject to federal taxes. Section 7701(a)(14) defines Ataxpayer@ as any person subject to any internal revenue tax and section 7701(a)(1) defines Aperson@ to include an individual, trust, estate, partnership, or corporation.

Rebuttal Analysis and Findings:

            The argument reflected by the IRS is an incomplete representation of the argument advanced. The question is not simply Ais a person an individual?@, but rather Ais a Aperson@ as defined above a Acitizen@ of the United States? Unquestionably, the above definition does not include a citizen of the United States, though it goes to a great deal of trouble to include an individual, trust, estate, partnership, or corporation. This is not a tortured misreading of the Code at all. Rather it is the language of the Code. “It is our duty to give effect, if possible, to every clause and word of a statute.” Duncan v. Walker, 533 U.S. 167, 174 (2001) (internal quotation omitted). “When confronted with clear and unambiguous statutory language, our duty is simply to enforce the statute that Congress has drafted.” United States v. Ortiz, 427 F.3d 1278, 1282 (10th Cir. 2005). It is also consistent with the argument preceding this one re: definition of the term AUnited States.@ It is axiomatic that if a tax is not subject to one of the constitutional rules of either apportionment or uniformity, then it cannot be imposed within the 50 states of the union and thus it cannot be imposed upon a citizen domiciled therein.

IRS= Opinion of Relevant Case Law:

            United States v. Karlin, 785 F.2d 90, 91 (3rd Cir. 1986), cert. denied, 480 U.S. 907 (1987) B the court affirmed Karlin=s conviction for failure to file income tax returns and rejected his contention that he was Anot a >person= within meaning of 26 U.S.C. 7203@ as Afrivolous and requir[ing] no discussion.@

            United States v. Rhodes, 921 F. Supp. 261, 264 (M.D. Pa. 1996) B the court stated that A[a]n individual is a person under the Internal Revenue Code.@

            Biermann v. Commissioner, 769 F.2d 707, 708 (11th Cir.), reh=g denied, 775 F.2d 304 (11th Cir. 1985) B the court said the claim that he was not Aa person liable for taxes@ was Apatently frivolous@ and, given the Tax Court=s warning to Biermann that his positions would never be sustained in any court, awarded the government double costs, plus attorney=s fees.     

            Smith v. Commissioner, T.C. Memo. 2000-290, 80 T.C.M. (CCH) 377, 378-89 (2000) B the court described the argument that Smith Ais not a >person liable= for tax@ as frivolous, sustained failure to file penalties, and imposed a penalty for maintaining Afrivolous and groundless positions.@

            United States v. Studley, 783 F.2d 934, 937 n.3 (9th Cir. 1986) B the court affirmed a failure to file conviction, rejecting the taxpayer=s contention that she was not subject to federal tax laws because she was Aan absolute, freeborn, and natural individual@ and went on to note that Athis argument has been consistently and thoroughly rejected by every branch of the government for

decades.@

            McCoy v. Internal Revenue Service, 2001 U.S. Dist. LEXIS 15113, at *21, 22, 88 A.F.T.R.2d (RIA) 5909 (D. Col. Aug. 7, 2001); United States v. Rhodes, 921 F. Supp. 261, 264 (M.D. Pa. 1996).

Rebuttal Analysis and Findings:

            See above AAnalysis and Findings.@ Once again, none of the above courts gave a considered opinion or finding on the issue before it and the IRS cites a plethora of case for mere effect not for veracity of the opinion. The Courts, once again, without addressing the issue, labeled the issue frivolous and refused to discuss it. The language in the Studley case is especially disturbing because the Court does not cite to one other case in any other branch of government that has entertained this argument. In short the Court dismissed the clear language of the statutes and legislated from the bench.

IRS= Opinion and Contention: The only Aemployees@ subject to federal income tax are employees of the federal government.

            This contention asserts 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 Awages.@ That section establishes the general rule that Awages@ include all remuneration for services performed by an employee for his employer. Section 3401(c) goes on to state that the term Aemployee@ includes Aan officer, employee, or elected official of the United States, a State, or any political subdivision thereof …@

The IRS= Opinion of the Law:

            Section 3401(c) defines Aemployee@ and states that the term Aincludes an officer, employee or elected official of the United States …@ This language does not address how other employees= wages are subject to withholding or taxation. Section 7701(c) states that the use of the word Aincludes@ Ashall not be deemed to exclude other things otherwise within the meaning of the term defined.@ Thus, the word Aincludes@ as used in the definition of Aemployee@ is a term of enlargement, not of limitation. It clearly makes federal employees and officials a part of the definition of Aemployee,@ which generally includes private citizens.

Rebuttal Analysis and Findings:

            First it must be noted that the Courts have consistently held that “It is our duty to give effect, if possible, to every clause and word of a statute.” Duncan v. Walker, 533 U.S. 167, 174 (2001) (internal quotation omitted). “When confronted with clear and unambiguous statutory language, our duty is simply to enforce the statute that Congress has drafted.” United States v. Ortiz, 427 F.3d 1278, 1282 (10th Cir. 2005). The IRS contends that the term Aincludes@ must be given an expansive meaning. But this is not true in tax law. As the Supreme Court has explained “It is a general rule, in the interpretation of all statutes levying taxes or duties upon subjects or citizens, not to extend their provisions by implication beyond the clear import of the language used, or to enlarge their operation so as to embrace matters not specifically pointed out, although standing upon a close analogy. In every case, therefore, of doubt, such statutes are construed most strongly against the government and in favor of the subjects or citizens, because burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports.” For further authority regarding this rule of statutory construction, please see the following cases: Gould v. Gould, 245 U.S. 151 (1917); Crocker v. Malley, 249 U.S. 223 (1919); United States v. Field, 255 U.S. 257 (1921); Smietanka v. First Trust & Sav. Bank, 257 U.S. 602 (1922); United States v. Merriam, 263 U.S. 179 (1923); Bowers v. New York & Albany Lighterage Co., 273 U.S. 346 (1927); Reinecke v. Northern Trust Co., 278 U.S. 339 (1929); Miller v. Standard Nut Margarine Co. of Florida, 284 U.S. 498 (1932); Old Colony R. Co. v. Commissioner, 284 U.S. 552 (1932); and White v. Aronson, 302 U.S. 16 (1937). American citizens clearly have the benefit of this rule. The word Ainclude@ can be interpreted as a word or expansion or one of limitation. Premier Products Co. v. Cameron 240 Or. 123, 400 P. 2nd 227, 228. Thus, in the construction of tax statutes the statute must be construed in favor of the citizen and against the government. Accordingly, the term Aincludes@ would have to be interpreted as a word of limitation, not expansion. The Merriam Webster Dictionary defines the term includes as a word of limitation, not expansion.[7]

            The term Aemployee@, or Aemployer@ in the statute must be construed to have a meaning similar to the other words immediately following it since, as a matter of statutory construction, words grouped in a list should have a related meaning. Schreiber v. Burlington Northern Inc., 472 U.S. 1, 8 (1985). Thus, it is logical when Section 3401(c) defines Aemployee@ and states that the term Aincludes an officer, employee or elected official of the United States …@ that the definition is mutually exclusive of other terms which could have been incorporated within the statute, but weren=t. Again, this is not a stretch of an elastic imagination; this is legislative and judicial law edict.

IRS= Opinion of Relevant Case Law:

            Montero v. Commissioner, 354 F. App’x 173 (5th Cir. 2009) – the court affirmed a $20,000 section 6673(a) penalty against the petitioner for advancing frivolous arguments that he is not an employee earning wages as defined by sections 3121 and 3401.   

            United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985) B calling the instructions Latham wanted given to the jury Ainane,@ the court said, A[the] 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 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. A

            Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986) B the court rejected Sullivan=s attempt to recover a civil penalty for filing a frivolous return, stating Ato the extent [he] argues that he received no >wages= … because he was not an >employee= within the meaning of 26 U.S.C. 3401(c), that contention is meritless. … The statute does not purport to limit withholding to the persons listed therein.@

            United States v. Hendrickson, 100 A.F.T.R.2d (RIA) 2007-5395, 2007 WL 2385071 (E.D. Mich. May 2, 2007) – the court permanently barred Peter and Doreen Hendrickson, who filed tax returns on which they falsely reported their income as zero, from filing tax returns and forms based on frivolous claims in Hendrickson’s book, “Cracking the Code,” that only federal, state, or local government workers are liable for federal income tax or subject to the withholding of federal taxes.

Other Cases:

Peth v. Breitzmann, 611 F. Supp. 50, 53 (E.D. Wis. 1985); Pabon v. Commissioner, T.C. Memo. 1994-476, 68 T.C.M. (CCH) 813, 816 (1994).

Rebuttal Analysis and Opinion:

            Again, none of the above cases gave serious consideration to the claim that a citizen was not an employee as defined by the Internal Revenue Code, thus these cases of are no consequence. That fact of that matter is that that question is a jury question and not one for the Courts. Also, see above analysis and findings.

Constitutional Amendment Claims

IRS= Opinion and Contention: 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.

IRS= Opinion of the Law:

There is no constitutional right to refuse to file an income tax return on the ground that it violates the Fifth Amendment privilege against self-incrimination. As the Supreme Court has stated, a taxpayer cannot “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.” United States v. Sullivan, 274 U.S. 259, 264 (1927). The failure to comply with the filing and reporting requirements of the federal tax laws will not be excused based upon blanket assertions of the constitutional privilege against compelled self-incrimination under the Fifth Amendment.

Rebuttal Analysis and Finding:

One cannot claim a blanket Fifth Amendment claim on a tax return. Nor does a claim under the 5th Amendment via a general or blanket invocation serve as a defense to filing an income tax return. But once again, this is not the proper question; rather, it is the IRS= spin on when, where, how, and why Fifth Amendment protections cannot be claimed in relationship to the income tax laws. Nevertheless, in United States v. Sullivan, 274 U.S. 259, 264 (1927) the Court said that AIt 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.@ Thus, this case dealt solely with making a 5th Amendment claim when one failed to file a return because of income earned in a criminal activity. However, the first Sullivan Court did recognize that it is undisputed that one is a witness against oneself when he fills out and supplies information on a tax return. Sullivan v. United States, 15 F.2d 809, 812 (4th Cir. 1926). And though this case was overturned by the Supreme Court, See 274 U.S. 259, the Supreme Court left in tact the conclusion that one could claim 5th Amendment protection under the income tax laws. The question then became, AHow does one make a claim for such protection?@ Should one take the position that he is not required to file income tax returns one may be prosecuted under 26 U.S.C. Section 7203. Thus, once one fails to file tax returns the government believes one should have filed, one can be criminally charged and jailed if convicted. This situation certainly gives rise to a citizen=s protections under the 5th Amendment to the Bill of Rights, United States Constitution.

IRS= Opinion of Relevant Case Law:

            Sochia v. Commissioner, 23 F.3d 941 (5th Cir. 1994), cert. denied, 513 U.S. 1153 (1995) – the court affirmed tax assessments and penalties for failure to file returns, failure to pay taxes, and filing a frivolous return and imposed sanctions for pursuing a frivolous case because the taxpayers claimed a Fifth Amendment privilege on each line calling for financial information, rather than provide any information on their tax return about income and expenses.

            United States v. Schiff, 612 F.2d 73, 83 (2nd Cir. 1979) B the court said that Athe Fifth Amendment privilege does not immunize all witnesses from testifying. Only those who assert as to each particular question that the answer to that question would tend to incriminate them are protected. … [T]he questions in the income tax return are neutral on their face … [h]ence privilege may not be claimed against all disclosure on an income tax return.@

            United States v. Brown, 600 F.2d 248, 252 (10th Cir. 1979) B noting that the Supreme Court had established Athat 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,@ the court said Brown made Aan illegal effort to stretch the Fifth Amendment to include a taxpayer who wishes to avoid filing a return.@

            United States v. Neff, 615 F.2d 1235, 1241 (9th Cir.), cert. denied, 447 U.S. 925 (1980) B the court affirmed a failure to file conviction, noting that the taxpayer Adid not show that his response to the tax form questions would have been self-incriminating. He cannot, therefore, prevail on his Fifth Amendment claim.@

            United States v. Daly, 481 F.2d 28, 30 (8th Cir.), cert. denied, 414 U.S. 1064 (1973) B the court affirmed a failure to file conviction, rejecting the taxpayer=s Fifth Amendment claim because of his Aerror in … his blanket refusal to answer any questions on the returns relating to his income or expenses.@ 

Rebuttal Analysis and Findings:

            Fifth Amendment, Bill of Rights, United States Constitution states that B ANo person . . . shall be compelled in any criminal case to be a witness against himself. . . @ The history and development of the Fifth Amendment right against self-incrimination has been one of slow but sure expansion of the benefits of its protection. James Madison, the prime author of this provision in the Bill of Rights to the U.S. Constitution, sought this provision to prevent the development in our country of proceedings similar to or identical with Spanish Inquisitions or Star Chamber proceedings.

            A cursory examination of the William Penn Case, 6 How. St. Tr. 951 (1670), reveals that resort to “Spanish Inquisitions” has on many occasions been desired in order to bring about the efficient operation of governmental machinery; this is what Madison desired to avoid by inserting the Fifth Amendment into our Constitution. The original intent or purpose for the Fifth Amendment was to compel the government to procure independent evidence of the facts and proof of a crime other than through the mouth of the accused. Without such a requirement and with the availability of procedures such as the Inquisition or Star Chamber, the government could constantly harass law abiding citizens and might on some occasion procure, through duress and coercion, a confession.

            But as is well known, such confessions are highly suspect, hence we have the protection of the Fifth Amendment. One of the most appropriate statements concerning the Fifth Amendment and its operation was made by U.S. Supreme Court Justice John Marshall in the case of United States v. Aaron Burr. Chief Justice Marshall, quoted in Counselman v. Hitchcock, 142 U.S. 547, 565, 12 S.Ct. 195 (1892), maintained that a witness could plead the Fifth Amendment not only in situations where his answer to a question would directly implicate him in a crime, but also in response to questions the answer to which would provide a link in the chain of evidence needed to convict the witness of a crime.

            Thus, no person can be forced by the government to give information or testify against himself. This is true in any administrative, civil, or criminal proceeding in which a person is involved. Lefkowitz v. Turley, 414 U.S. 70, 77, 94 S.Ct. 316 (1973); Maness v. Meyers, 419 U.S. 449, (1975); Pillsbury Company v. Conboy, 459 U.S. 248 (1983).

            The production of records in and of itself is not protected. However, the act of producing such records is sufficiently testimonial in nature such as to protect records from production under the 5th Amendment. Boyd v. United States, 116 U.S. 616, 631-32 (1886): United States v. Doe, 465 U.S. 605, 104 S.Ct. 1237, 1242 (1984). The application of Doe has continued as to personal and private records. In United States v.(Under Seal), 745 F.2d 834 (4th Cir. 1984), a case decided some seven (7) months after Doe, the Fourth Circuit specifically held that personal and individual records can’t be forcibly produced by any process, over a Fifth Amendment objection; see also, United States v. Cates, 686 F.Supp. 1185 (D.Md. 1988); United States v. Argomaniz, 925 F.2d 1349 (11th Cir. 1991); and United States v. Sharp, 920 F.2d 1167 (4th Cir. 1990). In In Re Grand Jury Proceedings on Feb. 4, 1982, 759 F.2d 1418 (9th Cir. 1985), it was determined that records of a party under investigation in the hands of his attorney were entitled to protection under the Doe “act of production” rule. Further, there is no “tax exception” to this rule; see United States v. Troescher, 99 F.3d 933 (9th Cir. 1996). Thus, according to the rationale of these cases, the compulsory production of private personal records cannot be obtained in view of a valid Fifth Amendment objection. Therefore, it is clear that the decision in Boyd still produces a legal result, even if from its “grave.”

There are basically two important Supreme Court decisions regarding the circumstances under which one may assert the Fifth Amendment regarding income tax returns. The first case was United States v. Sullivan, 274 U.S. 259 (1927), where the Court concluded that to assert the Fifth, one must do it on the return. See also Garner v. United States, 424 U.S. 648, 662-63 (1976). An example of how today’s federal appellate courts address this issue is shown via United States v. Neff, 615 F.2d 1235, 1238 (9th Cir. 1980), where that court held:

“The Supreme Court has stated that the privilege against self-incrimination, if validly exercised, is an absolute defense to a section 7203 prosecution for failure to file an income tax return. Garner v. United States, supra, 424 U.S. at 662-63. The Court has also held, however, that the privilege does not justify an outright refusal to file any income tax return at all. United States v. Sullivan, 274 U.S. 259, 263 (1927). Furthermore, an objection may properly be raised only in response to specific questions asked in the return. Id. See Garner v. United States, 501 F.2d 228, 239 n.18 (9th Cir. 1974) (en banc), aff’d Garner v. United States, supra, 424 U.S. 648.

 

            With this reasoning in mind the Court in United States v. Argomaniz, 925 F.2d 1349 (11th Cir. 1991) found that Argomaniz=s 5th Amendment protections were available to him during an IRS summons interview. Moreover, the Court also found that if there were any doubts about such a claim that the District must conduct an in camera session with Argomaniz to determine whether the claim made was indeed deserving of 5th Amendment protection. Thus, it is apparent, when the right available under the 5th Amendment is properly claimed by a person, said person does not have to testify against himself either orally or by producing one=s books or records. On the other hand, if a citizen is forced to give testimony by way of government compulsion, the compelled testimony cannot be used against an individual in a criminal case. Kastigar v. United States, 406 U.S. 441 (1972).

IRS= Contentions and Opinions: The federal income tax laws are unconstitutional because the Sixteenth Amendment to the United States Constitution was not properly ratified.

            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. Proponents mistakenly believe that the courts have refused to address this issue.

Rebuttal Analysis and Findings:

            To begin with the IRS misstates the contention. The contention is not that AThe Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional.@ The constitutionality of the income tax laws are not at stake if the 16th Amendment was not ratified. Rather, the contention is if the 16th Amendment was not ratified, the holding in the Pollock case is still valid law. If that is the case, then as the Pollock Court explained, an income tax is a direct tax, and therefore, if it is not subject to apportionment, it is unconstitutional. Pollock v. Farmers= Loan & Trust Co., 158 U.S. 601 (1895). Moreover, the belief held is not just that Ohio was not a state at the time the 16th Amendment was introduced to the states, but rather, that 3/4 of the states did not ratify the 16th Amendment as required by Article V of the United States Constitution.[8] Moreover, the belief has not survived over time because proponents believe the question has not been addressed by the Courts, rather the belief has survived because the courts have not addressed the question.

IRS= Opinion of Relevant Case Law: 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. The Sixteenth Amendment was ratified by forty states, including Ohio (which became a state in 1803; see Bowman v. United States, 920 F. Supp. 623 n.1 (E.D. Pa. 1995) (discussing the 1953 joint Congressional resolution that confirmed Ohio’s status as a state retroactive to 1803), and issued by proclamation in 1913. Shortly thereafter, two other states also ratified the Amendment. Under Article V of the Constitution, only three-fourths of the states are needed to ratify an Amendment. There were enough states ratifying the Sixteenth Amendment even without Ohio to complete the number needed for ratification. Furthermore, the United States Supreme Court upheld the constitutionality of the income tax laws enacted subsequent to ratification of the Sixteenth Amendment. Brushaber v. Union Pacific R.R., 240 U.S. 1 (1916). Since that time, the courts have consistently upheld the constitutionality of the federal income tax.

Rebuttal Analysis and Findings:

            The Sixteenth Amendment, in its present form, was not ratified by three-fourths of the states at the time it was submitted to the several states. Secretary of State Philander Chase Knox had before him the Senate and House journals of Kentucky which showed that the Senate had twice rejected, by votes disclosed in the journals, the amendment. The Oklahoma legislature altered by intentional amendment the proposed Sixteenth Amendment. They did not vote to ratify the amendment proposed by Congress; they voted to ratify their own proposed amendment. The formal notice sent to Knox clearly reported the exact language the Oklahoma legislature voted upon. The Governor of Arkansas vetoed the resolution passed by the legislature of that state. Arkansas had previously rejected ratifying the proposed sixteenth amendment, and thereafter changed its mind. In reference to Minnesota, Knox did not have any resolution from this state which disclosed the adoption of this amendment. California totally failed to send any document to Congress indicating that it had adopted the 16th Amendment. The resolutions of thirty-three states contained errors either of punctuation, capitalization, or wording. Further, Knox knew that eleven states had changed the amendment itself.

Since there is no lawful certificate or proclamation of the Secretary of State, the next question to be answered is whether thirty-six states did in fact ratify this amendment. The Sixteenth Amendment proposed by Congress in Senate Joint Resolution 40 read as follows:

“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.”

This proposed amendment was extremely short and had only thirty words in it. However, the required number of states did not concur in all of these thirty words, and this was known to Knox. Omitting changes made in capitalization, but noting the word and punctuation changes made by the states, the amendment agreed to by thirty-six states in this respect reads as follows:

 

“______________ Congress shall have power to _____________ and collect taxes on _____________ from whatever _________________ derived without apportionment among the several States and ______________________ ____________ ___________________ _____________ census _____ ___________________.”

IRS= Opinion of Relevant Case Law:

            Sochia v. Commissioner, 23 F.3d 941, 944 (5th Cir. 1994), reh’g denied, 32 F.3d 568 (5th Cir. 1994), cert. denied, 513 U.S. 1153 (1995) – the court held that defendant’s appeals, which challenged Sixteenth Amendment income tax legislation, were frivolous and warranted sanctions.

            Miller v. United States, 868 F.2d 236, 241 (7th Cir. 1989) (per curiam) B the court stated, AWe find it hard to understand why the long and unbroken line of cases upholding the constitutionality of the sixteenth amendment generally, Brushaber v. Union Pacific Railroad Company … and those specifically rejecting the argument advanced in The Law That Never Was, have not persuaded Miller and his compatriots to seek a more effective forum for airing their attack on the federal income tax structure.@ The court imposed sanctions for them having advanced a Apatently frivolous@ position.

            United States v. Stahl, 792 F.2d 1438, 1441, (9th Cir. 1986), cert. denied, 479 U.S. 1036 (1987) B stating that Athe 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,@ the court upheld Stahl=s conviction for failure to file returns and for making a false statement.

            Knoblauch v. Commissioner, 749 F.2d 200, 201 (5th Cir. 1984), cert. denied, 474 U.S. 830 (1986) B the court rejected the contention that the Sixteenth Amendment was not constitutionally adopted as Atotally without merit@ and imposed monetary sanctions against Knoblauch based on the frivolousness of his appeal. AEvery court that has considered this argument has rejected it,@ the court observed.

            United States v. Foster, 789 F.2d 457 (7th Cir.), cert. denied, 479 U.S. 883 (1986) B the court affirmed Foster=s conviction for tax evasion, failing to file a return, and filing a false W-4 statement, rejecting his claim that the Sixteenth Amendment was never properly ratified.

Other Cases:

United States v. Benson, 2008 WL 267055 (N.D. Ill. Jan. 10, 2008), aff’d in part, rev’d in part, 561 F.3d 718 (7th Cir. 2009), cert. denied, 130 S. Ct. 759 (2009); United States v. Schulz, 529 F.Supp.2d 341 (N.D.N.Y. 2007), aff’d 517 F.3d 606 (2nd Cir. 2008), cert. denied, 555 U.S. 946 (2008); Stearman v. Commissioner, T.C. Memo. 2005-39, 89 T.C.M. (CCH) 823 (2005), aff’d, 436 F.3d 533 (5th Cir. 2006), cert. denied, 547 U.S. 1207 (2006).

Rebuttal Analysis and Findings:

            A review of the case law shows there is unanimous judicial concurrence that the courts of the United States are absolutely precluded from addressing this issue. The IRS has disingenuously argued through these cases that the courts have unanimously held the argument is frivolous. In reality, the Courts have unanimously held that the arguments cannot be adjudicated in those courts as creating a political non-justiciable issue. Secretary Knox declared that enough states had ratified the sixteenth amendment. In U.S. v. Thomas, 788 F.2d 1250 (7th Cir. 1986) the court said, AThe Secretary’s 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’s decision is now beyond review. Thomas, 788 F.2d 1253-54. In United States v. Stahl, 792 F.2d 1438, 1440 (9th Cir. 1986) the Ninth Circuit found that: AStahl’s claim that ratification of the sixteenth amendment was fraudulently certified constitutes a political question because we could not undertake independent resolution of this issue “without expressing lack of the respect due coordinate branches of government.”@ In U.S. v. Foster, 789 F.2d 457 (7th Cir. 1986), the Seventh Circuit admits the issue of the ratification of the Sixteenth Amendment was poorly briefed and failed to provide sufficient information for the court to make a determination. In U.S. v. Ferguson, 793 F.2d 828 (7th Cir. 1986) and Miller v. U.S., 868 F.2d 236 (7th Cir. 1988), the Seventh Circuit added nothing to Thomas or Foster; it merely relied on Thomas and Foster. However, the Seventh Circuit in Miller admitted it lacked legal authority to adjudicate the issue. In Knoblauch v. Commissioner, 749 F.2d 200, 201-202 (5th Cir. 1984), a Tax Court case, Knoblauch only addressed the issue of whether or not Ohio was a state at the time of ratification of the amendment. The tax court said that Knoblauch had cited to no authorities which indicate that Ohio became a state later than March 1, 1803. However, whether or not the requisite number of states had ratified the 16th Amendment was never addressed and neither was whether or not Ohio was a state at the time. The Tax Court merely conclusively and presumptively found that Ohio was a state at the time of the alleged ratification of the Sixteenth Amendment without proof thereof. Sochia v. Commissioner and the other cases merely relied upon all the other cases.

Thus, the question of whether or not the Sixteenth Amendment was ever lawfully ratified by three-fourths of the States is still a question remaining unanswered by the Courts, notwithstanding the spin the IRS would put on the issue.

IRS= Contention and Opinion: The Sixteenth Amendment does not authorize a direct non-apportioned federal income tax on United States citizens.

            Some individuals and groups 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.

Rebuttal Analysis and Findings:

            The IRS again misstates the argument. The argument is “The Sixteenth Amendment does not authorize a direct non-apportioned income tax, period.” Since the IRS misstates the argument the law and cases upon which is relies has no value as they do not address the actual argument presented.

IRS= Opinion of the Law:

The constitutionality of the Sixteenth Amendment has invariably been upheld when challenged. Numerous courts have both implicitly and explicitly recognized that the Sixteenth Amendment authorizes a non-apportioned direct income tax on United States citizens and that the federal tax laws are valid as applied.

Rebuttal Analysis and Findings  

            The Collins Court opinion cited by the IRS below is in error. In Brushaber the Supreme Court did not hold that the Sixteenth Amendment was a direct tax not requiring apportionment, but rather that it was an indirect tax falling under the rule of uniformity. Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916). This is further confirmed in the Supreme Court Decision of Stanton v. Baltic Mining Co., 240 U.S. 103, 112-13 (1916) the same year the Supreme Court decided Brushaber. In Stanton the Supreme Court made clear what it said in Brushaber, and it held 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….”

            It stands then as the Supreme Court explained the income tax is an indirect tax it is subject to the rule of uniformity pursuant to Article 1 Section 8 of the United States Constitution which explains that all Duties, Imposts and Excises shall be uniform throughout the United States. Duties, Imposts and Excises are indirect taxes.

IRS= Opinion of Relevant Case Law:

            United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990) (relying on Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916)), cert. denied, 500 U.S. 920 (1991) – the court found defendant’s argument that the Sixteenth Amendment does not authorize a direct, non-apportioned tax on United States citizens to be “devoid of any arguable basis in law.”

            In re Becraft, 885 F.2d 547 (9th Cir. 1989) B the court affirmed a failure to file conviction, rejecting the taxpayer=s frivolous position that the Sixteenth Amendment does not authorize a direct non-apportioned income tax.

            Lovell v. United States, 755 F.2d 517, 518 (7th Cir. 1984) B the court rejected the argument that the Constitution prohibits imposition of a direct tax without apportionment, and upheld the district court=s frivolous return penalty assessment and the award of attorneys= fees to the government Abecause [the taxpayers=] legal position was patently frivolous.@ The appeals court imposed additional sanctions for pursuing Afrivolous arguments in bad faith.@

            Maxwell v. Internal Revenue Service, 103 A.F.T.R.2d (RIA) 2009-1571, 2009 WL 920533 (M.D. Tenn. Apr. 1, 2009) – the court found the taxpayer’s arguments have been “routinely rejected,” principally, that there is no law that imposes an income tax, nor is there a non-apportioned direct tax that could be imposed on him as a supposed non-citizen.

Rebuttal Analysis and Findings:

            First, it must be noted that the lower federal circuit courts of this nation are at war with themselves as to what type of tax the income tax is characterized as. The 1st, 3rd, 5th, 7th, 8th, 9th, and 10th Circuits take the position that it is a direct tax not subject to apportionment. The 2nd, 4th, and 6th Federal Circuits take the position that it is an indirect tax. Again, the Government is at War with itself as demonstrated herein below. In White Packing Co. v. Robertson, 89 F.2d 775, 779 (4th Cir. 1937), the court declared: “The tax is, of course, an excise tax, as are all taxes on income…” This same conclusion was reached in Corn v. Fort, 95 S.W. 2d 620 (Tenn. 1936), and Jack Cole Co. v. MacFarland, 337 S.W.2d 453 (Tenn. 1960), where that court held that the Tennessee income tax applies only to privileges and not to the exercise of the right to make a living. Other courts have also so held; see, Sims v. Ahrens, 167 Ark. 557, 271 S.W. 720 (1925); and Redfield v. Fisher, 135 Or. 180, 292 P. 813 (1930). Once these parties determined that the federal income tax was classified as an excise tax, they relied upon the definition of this tax as appears within the leading case on this point, Flint v. Stone Tracy Co., 220 U.S. 107, 31 S.Ct. 342, 349 (1911), which provided the following definition for this tax: “Excise taxes are those laid upon the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.” Based upon this definition of excise tax, they logically concluded, in conformity with the other cases upon which they relied, that they were not subject to it. Fleschner and Rubel have a right to rely upon these decisions; see United States v. Bishop, 412 U.S. 346, 361 (1973); and United States v. Albertini, 830 F.2d 985 (9th Cir. 1987). The problem evident here is that the courts of this nation do not speak with unanimity about this point of whether the federal income tax is either an excise or direct tax. For example, in Brushaber v. Union Pacific Railroad Co., 240 U.S. 1, 36 S.Ct. 236 (1916), the Court appears to have declared that the federal income tax is an excise tax, and at least one court has agreed that this case appears to so state; see United States v. Gaumer, 972 F.2d 723 (6th Cir. 1992). However, decisions of the Court following this one indicate that the tax is really a direct tax; see Stanton v. Baltic Mining Co., 240 U.S. 104, 112, 36 S.Ct. 278 (1916); William E. Peck and Co. v. Lowe, 247 U.S. 165, 172, 173, 38 S.Ct. 432 (1918); and Eisner v. Macomber, 252 U.S. 189, 206, 40 S.Ct. 189 (1920). This split within decisional authorities over this issue is very apparent. In Ficalora v. Commissioner, 751 F.2d 85 (2nd Cir. 1984), that court indicated that the tax was an indirect tax. In Jandorf’s Estate v. Commissioner, 171 F.2d 464 (2nd Cir. 1948), that court declared “It should be noted that estate or inheritance taxes are excises…while surtaxes, excess profits and war-profits taxes are direct property taxes.” Yet in the adjoining First and Third Circuits, those courts appear to have labeled this tax as a direct one; see United States v. Turano, 802 F.2d 10 (1st Cir. 1986); and Keasbey & Mattison Co. v. Rothensies, 133 F.2d 894 (3rd Cir. 1943). The Fifth Circuit falls within this same category; see Parker v. Commissioner, 724 F.2d 469, 471 (5th Cir. 1984)(“the sixteenth amendment was enacted for the express purpose of providing for a direct income tax”); Jacobs v. Gromatsky, 494 F.2d 513 (5th Cir. 1974); Lonsdale v. Commissioner, 661 F.2d 71 (5th Cir. 1981); and United States v. McCarty, 665 F.2d 596 (5th Cir. 1982). Other cases disclose this uncertainty; see Commissioner v. Obear-Nester Glass Co., 217 F.2d 56, 58 (7th Cir. 1954)(“The Amendment allows a tax on ‘income’ without apportionment, but an unapportioned direct tax on anything that is not income would still, under the rule of the Pollock case, be unconstitutional”); Prescott v. Commissioner, 561 F.2d 1287 (8th Cir. 1977); Funk v. Commissioner, 687 F.2d 264 (8th Cir. 1982); Broughton v. United States, 632 F.2d 707 (8th Cir. 1980); Fairbanks v. Commissioner, 191 F.2d 680 (9th Cir. 1951); United States v. Stillhammer, 706 F.2d 1072 (10th Cir. 1983); and United States v. Lawson, 670 F.2d 923 (10th Cir. 1982); Harkness v. United States, 469 F.2d 310 (Ct.Cl. 1972). At the state level, an opposite situation is apparent. Most state courts hold that an income tax is an excise tax; see State v. Weil, 232 Ala. 578, 168 So. 679 (1936)(state constitutional amendment took income taxes out of the property class and placed them in the excise class); Featherstone v. Norman, 170 Ga. 370, 153 S.E. 58 (1930); Deifendorf v. Gallet, 51 Idaho 619, 10 P.2d 307 (1932);Miles v. Dept. of Treasury, 209 Ind. 172, 199 N.E. 372 (1935); Reynolds Metal Co. v. Martin, 269 Ky. 378, 107 S.W.2d 251 (1937); Oursler v. Tawes, 178 Md. 471, 13 A.2d 763 (1940)(the federal tax is an excise); O’Keefe v. Somerville, 190 Mass. 100, 76 N.E. 457, 458 (1906); Opionio of Justices, 266 Mass. 590, 165 N.E. 904 (1929); Reed v. Bjornson, 191 Minn. 254, 253 N.W. 102 (1934); Lawrence v. Miss. State Tax Comm., 162 Miss. 338, 137 So. 503 (1931); Glagow v. Rowse, 43 Mo. 479 (1869); Ludlow-Saylor Wire Co. v. Wolllbrinck, 275 Mo. 339, 205 S.W. 196 (1918);O’Connell v. State Board, 95 Mont. 91, 25 P.2d 114 (1933); Opinion of Justices, 77 N.H. 611, 93 A. 311 (1915); Maxwell v. Kent-Coffey Mfg. Co., 204 N.C. 365, 168 S.E. 397 (1933); Hunton v. Commonwealth, 166 Va. 229, 183 S.E. 873 (1936); and State v. Frear, 148 Wis. 456, 134 N.W. 673 (1912). Others hold the tax is a property tax; see Culliton v. Chase, 174 Wash. 363, 25 P2d 81 (1933); Jensen v. Henneford, 185 Wash. 209,53 P.2d 607 (1936); Bryant v. Comm. of Corps & Tax’n., 291 Mass. 498, 197 N.E. 509 (1935).

Other IRS= Alleged Fictional Legal Bases

IRS= Contention and Opinions: 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 individuals and groups claim that taxpayers are not required to file tax returns because of the Paperwork Reduction Act of 1980, 44 U.S.C. 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. 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.

IRS= Opinion of the Law:

            The courts have uniformly rejected this argument on multiple grounds. Some courts have simply noted that the PRA applies to the forms themselves, not to the instruction booklets, and because the Form 1040 does have a control number, there is no PRA violation. Other courts have held that Congress created the duty to file returns in section 6012(a) and “Congress did not enact the PRA’s public protection provision to allow OMB to abrogate any duty imposed by Congress.” United States v. Neff, 954 F.2d 698, 699 (11th Cir. 1992).

Rebuttal Analysis and Findings:

            The first problem with the IRS= opinion is that the Paperwork Reduction Act was modified in 1995, thus the Act of 1980 is no longer applicable. This of course changes the legal landscape and as a result thereof most likely leads to the result that many of the Court cases which pre-date 1995 are no longer valid law, such as all the cases cited in this section by the IRS.

IRS= Opinion of Relevant Case Law:

Dodge v. Commissioner, 317 F. App’x 581 (8th Cir. 2009) – the court treated the taxpayer’s argument that the Form 1040 does not comply with the PRA as frivolous.

Wolcott v. Commissioner, 103 A.F.T.R.2d 2009-1300 (6th Cir. 2008) – the court rejected the taxpayer’s argument that Form 1040 does not comply with the PRA and imposed sanctions of $4,000 under 12 U.S.C. § 1912 for bringing a frivolous appeal.

United States v. Patridge, 507 F.3d 1092 (7th Cir. 2007), cert. denied, 552 U.S. 1280 (2008), reh’g denied, 553 U.S. 1062 (2008) – in upholding the taxpayer’s conviction for tax evasion, the court addressed and rejected the taxpayer’s contention that the PRA foreclosed his conviction. Salberg v. United States, 969 F.2d 379 (7th Cir. 1992) – rejecting the taxpayer’s claims under the PRA, the court affirmed his conviction for tax evasion and failing to file a return.

United States v. Holden, 963 F.2d 1114 (8th Cir. 1992), cert. denied, 506 U.S. 958 (1992) – the court affirmed the taxpayer’s conviction for failing to file a return and rejected his contention that he should have been acquitted because tax instruction booklets fail to comply with the PRA.

United States v. Hicks, 947 F.2d 1356, 1359 (9th Cir. 1991) – the court affirmed the taxpayer’s conviction for failing to file a return, finding that the requirement to provide information is required by law, not by the IRS. “This is a legislative command, not an administrative request. The PRA was not meant to provide criminals with an all-purpose escape hatch.”

Lonsdale v. United States, 919 F.2d 1440, 1445 (10th Cir. 1990) – the court held that the PRA does not apply to summonses and collection notices.

United States v. Wunder, 919 F.2d 34 (6th Cir. 1990) – the court rejected the taxpayer’s claim of a PRA violation and affirmed his conviction for failing to file a return.

Other Cases:

Saxon v. United States, T.C. Memo. 2006-52, 91 T.C.M. (CCH) 914

Rebuttal Analysis and Findings:

            The Commissioner of Internal Revenue knows that an income tax return filing requirement is subject to the PRA. The Commissioner knows that any legal requirement goes through the PRA, and the only persons arguing otherwise are those charged with protecting the very public the protection provision, section 3512, was enacted to protect. Section 3512 reads:

A(a) Notwithstanding any other provision of law, no person shall be subject to any penalty for failing to comply with a collection of information that is subject to this subchapter if –

(1) the collection of information does not display a valid control number assigned by the Director in accordance with this subchapter; or

(2) the agency fails to inform 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.

(b) The protection provided by this section may be raised in the form of a complete defense, bar, or otherwise at any time during the agency administrative process or judicial action applicable thereto.@

            The 10th Circuit described the 1980 Apublic protection provision@ as: Notwithstanding any other provision of law, no person shall be subject to any penalty for failing to maintain or provide information to any agency if the information collection request involved was made after December 31, 1981, and does not display a current control number assigned by the Director [of OMB], or fails to state that such request is not subject to this chapter. See U.S. v. Dawes, 951 F.2d 1189 (10th Cir. 1991). However, there is a slight difference between the 1980 PRA and the 1995 PRA. The 1995 PRA changed section 3512 from Afailing to maintain or provide information@ to the new language Afailing to comply with a collection of information that is subject to this chapter…@

            The Legislative History, PL 104-13, pg. 8, states that the reason for the passage of the PRA was to strengthen the Federal Reports Act by Aeliminating exemptions from review for several agencies,@ including the Internal Revenue Service (saying e.g., Internal Revenue Service). The PRA of 1995 was enacted in part to amend section 3512 for Apurpose of consistency, clarity, and to unequivocally cover all collections of information@ including Athird party@ requests. (pg. 54 of the report) The House Conference Report at page 36, states that AThe Senate bill contains a provision which changes the Act=s current >public protection= provision by requiring a collection of information subject to the Act display a notice that a person is not required to respond to the collection of information unless it displays a control number which is valid.@ There have been so many cases that have held that Ainstruction booklets@ are not subject to the PRA and do not need OMB approval. See, U.S. v. Holden, 963 F.2d 1114 (8th Cir. 1992) (Although tax forms fall within the PRA’s definition of information collection requests, Dole v. United Steelworkers, 494 U.S. 26, 33, 110 S.Ct. 929, 933, 108 L.Ed.2d 23 (1990), tax instruction booklets do not. United States v. Dawes, 951 F.2d 1189, 1192 (10th Cir. 1991). Because tax instruction booklets simply assist a taxpayer in completing tax forms and ensure compliance with the information collection requests, booklets are not required to display an OMB number. Id. “As long as the 1040 form complies with the [PRA], nothing more is required.” Id. at 1193.  See also, United States v. Dawes, 951 F.2d 1189, 1191 (10th Cir. 1991) (IRS instruction booklets, like IRS regulations, are not information requests covered by the PRA because they are “subsidiary to . . . the tax form” and “function only to aid the taxpayer in providing the information required by the 1040 form”). U.S. v. Ryan, 969 F.2d 238 (7th Cir. 1992) Prior to the 1995 Act passed by Congress, several Courts had advanced the Astatutory origin theory.@ See, United States v. Hicks, 947 F.2d 1356, 1359 (9th Cir. 1991) (PRA does not constitute a defense to prosecution for failing to file federal income tax returns); United States v. Kerwin, 945 F.2d 92 (5th Cir. 1991) (“Paperwork Reduction Act does not apply to the statutory requirement that a taxpayer must file a return”). In Salberg v. U.S., 969 F.2d 379 (7th Cir. 1992) the 7th Circuit again dealt with whether IRS regulations and the 1040 instruction books required OMB approval and that because the evidence at trial proved beyond doubt said instructions and regulations did not Acomport with requirements of the PRA@, Salberg contended Ahe cannot be penalized for failing to file a tax return.@ Id. Salberg relied on United States v. Smith, 866 F.2d 1092 (9th Cir. 1989), in which the Ninth Circuit held that agency regulations were subject to the requirements of the PRA. Id. at 1098-99. The Smith court reversed a criminal conviction based on the defendant’s failure to file an information request required by an agency regulation because the regulation, not bearing a current control number, failed to comply with the PRA. Id. at 1099. However, the defendants in Smith were convicted of violating a regulation; Salberg was convicted of violating a statute. It was a federal statute – 26 U.S.C. 7203 – not a regulation or an instruction book that required Salberg to file an income tax return. Statutes are not subject to the PRA and, as the IRS points out. every court that has considered the argument that the regulations and the instruction books promulgated by the IRS are within the scope of the PRA has rejected it. AAn administrative regulation, of course, is not a >statute.= While in practical effect regulations may be called >little laws,= they are at most but offspring of statutes.@ U.S. v. Mersky, 361 U.S. 431, 437 (1960). The Supreme Court has always construed the Criminal Appeals Act narrowly, limiting it strictly Ato the instances specified.@ United States v. Borden Co., 308 U.S. 188, 192 (1939). See also United States v. Swift & Co., 318 U.S. 442 (1943). But, all IRS statutes are Anot complete@ by themselves, since they merely declare the range of their operation and Aleaves to its progeny the means to be utilized in the effectuation of its command.@ Once promulgated, regulations, called for by the statute itself, have the force of law, and violations thereof incur criminal prosecutions, just as if all the details had been incorporated into the congressional language. The result is that neither the statute nor the regulations are complete without the other, and only together do they have any force. In effect, therefore, the construction of one necessarily involves the construction of the other. When Congress passed the 1995 PRA they added a paragraph to section 3512’s reach for protection of the public by saying: b) The protection provided by this section may be raised in the form of a complete defense, bar, or otherwise at any time during the agency administrative process or judicial action applicable thereto. At the time decisions of some Circuits regarding application of the PRA, which dealt with the 1980 PRA, seemed to divide on whether the IRS was exempt from the reach of the PRA. Congress in 1995 settled that issue and made certain it was crystal clear Congress intended in 1980 to Aeliminate@ any exemptions for any federal agency, INCLUDING THE INTERNAL REVENUE SERVICE. House Report (page 8) Even the 8th and 10th Circuits agreed with the Supreme Court that the 1040 form was a typical information collection request form subject to the PRA. See, U.S. v. Holden, 963 F.2d 1114 (8th Cir. 1992) quoting United States v. Dawes, 951 F.2d 1189, 1192 (10th Cir. 1991). (“As long as the 1040 form complies with the [PRA], nothing more is required.” Id. at 1193). Since the only test by the 6th, 9th,and 11th Circuits whether the requirement to file a tax return derives wholly from a single specific provision of the Internal Revenue Code was rejected and denounced by the Commissioner in the 1996 instruction booklet (6001, 6011, 6012(a) and their regulations) (and in every booklet since), as well as in 1995 by Congress when they explained there were no exemptions whatsoever to the application of the PRA or the reach of its protection, failure to comply with the Act is a Acomplete defense@ and Abar@ to and of any punishment, whether it is criminal prosecution, or otherwise.

 


[1] IRC Section 6011: (a) General rule. When required by regulations prescribed by the Secretary any person made liable or any tax imposed by this title, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary.

[2] IRC Section 6012: (a) General rule 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 . . .@

[3] IRC Section 6072(a): Time for filing income tax returns. (a) General rule In the case of returns under section 6012, 6013, 6017, or 6031 (relating to income tax under subtitle A), returns made on the basis of the calendar year shall be filed on or before the 15th day of April following the close of the calendar year and returns made on the basis of a fiscal year shall be filed on or before the 15th day of the fourth month following the close of the fiscal year, except as otherwise provided in the following subsections of this section.

[4] IRC Section 6151: Time and place for paying tax shown on returns. (a) General rule. Except as otherwise provided in this subchapter, when a return of tax is required under this title or regulations, the person required to make such 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 (determined without regard to any extension of time for filing the return). (b) Exceptions (1) Income tax not computed by taxpayer. If the taxpayer elects under section 6014 not to show the tax on the return, the amount determined by the Secretary as payable shall be paid within 30 days after the mailing by the Secretary to the taxpayer of a notice stating such amount and making demand therefor.

[5] 12 USC Section 411. Issuance to reserve banks; nature of obligation; redemption B states that AFederal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.@ Thus, it is apparent that while the money making power was shifted from the Congress to the private Federal Reserve Bank, that Federal Reserve Notes were only evidence of money, and not money and that they could be redeemed for real money, i.e., silver and gold dollars.

[6] It must be noted that the Courts of the nation are at war with themselves as to what type of tax the income tax is characterized as. The 1st, 3rd, 5th, 7th, 8th, 9th, and 10th Circuits take the position that it is a direct tax not subject to apportionment. The 2nd, 4th, and 6th Federal Circuits take the position that it is an indirect tax which would make it subject to the rule of uniformity.

[7] include

Main Entry:in,clude

Pronunciation:in-*kl*d

Function:transitive verb

Inflected Form:in,clud,ed ; in,clud,ing

Etymology:Middle English, from Latin includere, from in- + claudere to closeC more at CLOSE

Date:15th century

1 : to shut up : ENCLOSE

2 : to take in or comprise as a part of a whole

3 : to contain between or within *two sides and the included angle*

Bin,clud,able or in,clud,ible \-*kl*-d*-b*l\ adjective

 

[8] Article V, U.S. Constitution: The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution, or, on the Application of the Legislatures of two thirds of the several States, shall call a Convention for proposing Amendments, which, in either Case, shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by the Legislatures of three fourths of the several States, or by Conventions in three fourths thereof, as the one or the other Mode of Ratification may be proposed by the Congress; Provided that no Amendment which may be made prior to the Year One thousand eight hundred and eight shall in any Manner affect the first and fourth Clauses in the Ninth Section of the first Article; and that no State, without its Consent, shall be deprived of its equal Suffrage in the Senate.

 

A Response to the IRS’ “The Truth About Frivolous Tax Arguments” (IRS CONTENTIONS AND REBUTTAL THERETO)
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