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Date: Sun, 15 Jun 1997 19:31:36 -0700
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From: Paul Andrew Mitchell [address in tool bar]
Subject: SLS: TaxProphet Hot Topics - February 1996 (fwd)
<snip>
>
>From: am-her@juno.com (Rusty Lee)
>
>The guy who wrote this message must be a real piece of work !!!
>He's obviously one who makes a living from the "system" and the fraud
>that has been perpetrated upon the People by that system. Clowns like
>this guy are the ones who belong in the circus !!!
>
>Harold T. says there is a great followup \ rebuttal to this message by
John Kurtz -
>" Response to the Taxprophet at http://kwicsys.com/wtp/other.htm ".
>
>Could one of you who I am forwarding this message to please take a look
>at the above response on the net and forward it to me.?.?!?.
>I would REALLY appreciate it.
>Rusty
>
>--------- Begin forwarded message ----------
>From: Harold Thomas <harold@halcyon.com>
>Subject: TaxProphet Hot Topics - February 1996
>
>This is a multi-part message in MIME format.
>
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>Anyone like to rebut what this "Tax Prophet" has to say at:
>Http://www.taxprophet.com/hot/feb96.html ???
>He seems to feel that P.T. Barnum was referring to you (and I)!
>
>Harold
>http://www.halcyon.com/harold/
>
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><HTML>
><HEAD>
><TITLE>TaxProphet Hot Topics - February 1996</TITLE>
></HEAD>
><BODY>
><CENTER>
><A HREF="hot.html"><IMG BORDER=0 SRC="../gifs/hot_bar.gif"></A><P>
></CENTER>
><CENTER>
><H3>February, 1996 Hot Topics</H3>
><P>
><A NAME="feb96"><H3>THE TAX PROTESTOR MOVEMENT:</H3></A>
><H3>Proof that P.T. Barnum Was Right</H3>
></CENTER>
><HR>
><BR CLEAR=all>
>Circus legend P.T. Barnum's famous saying, "There's a sucker
>born every minute!" accurately describes the intellectual
>underpinnings of the tax protestor movement. Today's hucksters
>are getting rich promoting the notion that one does not have to
>pay federal income taxes on the money he or she earns. The victims
>of these scams pay twice: once to the huckster who entices them
>to a seminar or sells them a book costing big bucks; and again
>when the IRS or the Courts levy huge penalties and fines, in addition
>to the taxes owed plus interest.
><P>
>Although the overwhelming majority of our citizens acknowledge
>their obligation to pay federal income taxes, there exists a tiny,
>but vocal, minority who share a delusion that they can single-handedly
>rebel against the system and avoid paying income taxes altogether.
>These people believe, that in spite of our tax laws, they have
>no obligation whatsoever to pay taxes, and they repeatedly assert
>this futile and frivolous claim before the IRS and in court.
><P>
>Unfortunately, many are using the Internet to espouse their irrational
>positions, and those uninformed taxpayers could be seduced by
>the argument that only "suckers" pay taxes. Actually,
>the opposite is true: Only "fools" would believe that
>the U.S. has no right to collect taxes from them, and those who
>play the tax protestor game wind up big losers. Because tax protestors
>have moved onto the Internet, this month's Hot Topics will address
>their so-called legal arguments.
><P>
>While some tax protestors set forth sophisticated arguments that
>are nonetheless rejected as frivolous (See <I>Coleman v Cm.</I>
>50 TCM 118, 120 (1985)), most fail to cite any legal precedent
>or cite to cases that are irrelevant to their theories. The courts
>are generally intolerant of "tax protestor rhetoric and legalistic
>gibberish" uttered by errant and malinformed tax protestors.
><I>Pabon v. Cm.</I> TCM 1994-476. A review of the Internal Revenue
>Code and case law shows that those making such arguments are routinely
>fined for abusing our court system and some wind up in prison.
><P><hr>
><CENTER><h4>Addressing Common Tax Protestor Arguments</h4> </CENTER>
><P>
><CENTER>
><P>
><h5>Historical Note: Income Taxes Do Not Violate Constitutional
>Rights</h5>
></CENTER>
><P>
>Americans can reminisce about a time in their history when direct
>income taxes were prohibited by the constitution. Prior to the
>adoption of the Sixteenth Amendment to the Constitution, the
>Constitutional
>requirement of apportionment among the states of "direct
>taxes" (Art. 1, Sec. 9, clause 4) prohibited Congress from
>passing an income tax act. The Sixteenth Amendment, ratified by
>the necessary three-fourths of the states on February 25,1913,
>eliminated the requirement of apportionment of taxes on incomes.
>It granted Congress power to lay and collect taxes on incomes,
>from whatever source derived, without apportionment. Thus, in
>1913, the bull was let out of the cage, and however one may wish
>to fantasize, there is no going back now.
><P>
>Even so, some tax protestors continue to challenge the constitutional
>authority of Congress to impose an income tax on individuals.
>They choose to ignore the last ninety years of constitutional
>law developed in this area. They also ignore the precise holding
>of the Supreme Court in <I>Pollock v Farmer's Loan and Trust Co</I>.,
>157 US 429, 158 US 601 on rehearing (1895) which stated that taxes
>on income from employment were not direct taxes and were not subject
>to the necessity of apportionment. <I>Ficalora v Cm.</I> 85-1
>USTC Sec. 9103, 751 F 2d 85 (1984).
><P>
>In addition to arguing that the income tax is unconstitutional,
>tax protestors often claim that the Tax Court is an unconstitutional
>court, and that the income tax laws violate the individual's
>constitutional
>rights, such as the right of freedom of religion, the Fifth Amendment
>privilege against self-incrimination, and the Thirteenth Amendment's
>prohibition of involuntary servitude. The courts always reject
>these arguments and impose substantial penalties.
><P><hr>
><CENTER><h4>For Once and For All, Wages are Taxable Income and Federal
>Reserve Notes are Legal Tender</h4> </CENTER>
><P>
>Many tax protestors may not realize that their arguments are frivolous.
>Arguments which the courts consider frivolous are subject to severe
>monetary sanctions (discussed later). They may believe their contentions
>are based on an intelligent and eloquently expressed analysis
>of their constitutional and God-given rights. That is probably
>what the taxpayer in the case of <I>Peth v. Breitzmann</I>, 84-1
>USTC Sec. 9321 (1984) thought. <U>Peth</U> is a typical individual
>who set forth a common laundry list of reasons that he was not
>required to pay taxes. Among other claims, he argued that wages
>were not includible in income; he was not a person liable for
>tax; he was not an employee; and federal reserve notes were not
>legal tender.
><P>
>The taxpayer further contended that he earned no "income"
>because the income taxes are directed to taxable gain, and since
>he receives a paycheck equal to the fair market value of his labor,
>there was no gain. The Court responded that "no court has
>ever accepted this argument for the purpose of determining taxable
>income. Indeed, it has always been rejected. For once and for
>all, wages are taxable income."
><P>
>In answer to the taxpayer's "silly" federal reserve
>argument, the Court pointed out that "Congress has declared
>federal reserve notes to be legal tender for all public and private
>debts, and this declaration is the supreme law of the land."
><P><hr>
><CENTER><h4>United States Citizens are Taxpayers Subject to the
>Jurisdiction
>of the IRS</h4> </CENTER>
><P>
>Many tax protestors improperly construe terms and definitions
>found in Code sections or tax cases to reach a conclusion that
>they are exempt from tax. These arguments are always futile and
>can be perilous to one's wallet. The IRS and the court will likely
>hold that such arguments are frivolous and subject the tax protestor
>to monetary sanctions.
><P>
>For example, Section 1 of the Code "imposes an income tax
>on the income of every individual who is a citizen or resident
>of the United States..." [Reg. §1.1-1(a)]. The regulations
>further determine income tax liability on individuals as follows:
><BLOCKQUOTE>
>(b) <I>Citizens or residents of the United States liable to tax</I>.
>In general, all citizens of the United States, wherever resident,
>and all resident alien individuals are liable to the income taxes
>imposed by the Code whether the income is received from sources
>within or without the United States...
></BLOCKQUOTE><p>
>
><BLOCKQUOTE>
>(c) <I> Who is a citizen</I>. Every person born or naturalized
>in the United States and subject to its jurisdiction is a citizen....
>Reg. §1.1-1.
></BLOCKQUOTE>
>
><P>
>Tax protestors often point out that the word "individual"
>is not defined in the Code or regulations, and conclude that they
>are not individual U.S. residents or citizens subject to federal
>income tax. However, read in context, the Code and regulations
>use the word "individual" in its common language usage;
>thus, the term need not be defined. Clearly, you and I are
>"individuals"
>and are liable for federal taxes. Any other interpretation of
>the clear language of the code is merely a word game played by
>people who have never won a case or ruling in any court.
><P>
>In a similar attempt to manipulate language in the Code, the taxpayer
>in <I>Blum v. IRS</I>, 91-1 USTC Sec 50,140 (1991) a resident
>of Missouri, failed to persuade the Court that he was not a citizen
>of the United States subject to the jurisdiction of the IRS. He
>asserted the language in the Code limits to Washington D.C. or
>the United States territories.
><P>
>Likewise, a taxpayer's claim that as a natural born citizen of
>Montana he was a nonresident alien and, thus, not a "taxpayer"
>as defined in the Tax Code, was rejected by the Court as meritless.
><I>US v Hansen</I>, 94-1 USTC Sec 50,075 (9th Cir, 1994).
><P>
>The Court also rejected as frivolous a taxpayer's contention that
>she was not a "taxpayer" because she was "an absolute,
>free born and natural individual." In <I>US v Studley</I>,
>86-1 USTC Sec. 9390 (9th Cir, 1986) the Court noted that:
><P>
><blockquote>...this argument has been consistently and thoroughly
>rejected
>by every branch of the government for decades. Indeed advancement
>of such utterly meritless argument is now the basis for serious
>sanctions imposed on civil litigants who raise them.</blockquote>
><P>
>The taxpayer in <I>Peth</I> maintained that he was not "an
>officer, employee, or elected official, of the United States,
>the District of Columbia, or any agency of the United States or
>the District of Columbia" under the levy and distraint provisions
>of 26 U.S.C. §6331(a), mistakenly assuming that this provision
>applies only to federal officers and employees.
><P>
>The taxpayer in<I> Peth</I> also argued unsuccessfully that he
>was not an "employee" under 26 U.S.C.§3401(c) because
>he is not a federal officer, employee, elected official, or corporate
>officer. The Court pointed out that this definition of
>"employee"
>does not exclude all other wage earners.
><P>
>Finally, the taxpayer in <I>Peth</I> failed to convince the Court
>that his wages were exempt from withholding under 26 U.S.C
>§3401(a)(8)(B),
>which excludes remuneration for services rendered within a United
>States possession. The Court pointed out that the Plaintiff was
>wrong in assuming that Wisconsin is a "United States possession."
><P><hr>
><CENTER><h4>The Hooven Case is Irrelevant to Income Tax Liability</h4>
></CENTER>
><P>
>Some tax protestors cite Blacks Law Dictionary (which is not legal
>precedent) for the definition of the United States:
><P>
><blockquote><B>United States.</B> This terms has several meanings. It may
>be merely the name of the sovereign occupying the position analogous
>to that of the sovereigns in family of nations, it may designate
>territory over which the sovereignty of the United States extends,
>or it may be collective name of the states which are united by
>and under the Constitution. <U>Hooven & Allision Co. vs. Evatt,
>U.S. Ohio</U>, 324 U.S. 652.</blockquote>
><P>
>Somehow, tax protestors read this definition to mean that only
>"federal" and not "state" citizens are subject
>to federal income tax. They believe the case of <I>Hooven &
>Allison Co. v. Evatt</I>, 324 US 652 (1945), (<I>Hooven I</I>)
>provides legal precedent for the proposition that they are not
>liable for income taxes. However, the<I> Hooven I</I> case (which
>was subsequently overruled in part) was decided before the Internal
>Revenue Code of 1954 was enacted and has nothing whatsoever to
>do with an individual's liability for federal income tax. <I>Hooven
>I</I> dealt with whether state taxation of imports violates the
>Import-Export clause of the United States Constitution, Art. I,
>§ 10, cl .2. The Court concluded that imported merchandise
>is exempt from state taxation until it is removed from the package
>in which it is imported, or when used for the purpose for which
>it is imported. The Court, noting that the term "United States"
>may be used in any one of several senses, also concluded that
>although the Philippines is a territory belonging to the United
>States, it is not constitutionally united with it, and goods brought
>from the Philippines constitute "imports" within the
>meaning of the constitutional provision. <I>Hooven I</I>, 324
>U.S. 671,673.
><P>
><I>Limbach v. Hooven & Allison Co.</I>, 466 US 353 (1984)
>(<I>Hooven II</I>) overruled <U>Hooven I</U> to the extent that
>a state personal property tax could not be imposed until the goods
>are removed from the original packaging. The Court held that
>nondiscriminatory
>ad valorem property taxes are not prohibited by the Import- Export
>Clause. Thus, <U>Hooven I</U> and <U>Hooven II</U> are irrelevant
>to tax protestor arguments. These cases are not legal authority
>for individual federal income tax liability cases and should not
>be cited as precedent.
><P><hr>
><CENTER><h4>Tax Protestors will be Sanctioned</h4> </CENTER>
><P>
>Congress, the courts and the IRS are not sympathetic to tax protest
>principles. In<I> Peth</I>, discussed above, the Court dismissed
>the taxpayer's action and awarded costs to the private defendants
>and double costs to the government. Finding that the taxpayer's
>action was frivolous and brought in bad faith, the Court pointed
>out that:
><P>
>A considerable amount of time has been spent processing plaintiff's
>action, and it has been determined to be wholly without merit.
>Indeed, it is frivolous. No reasonable person could seriously
>think that, for example, the revenue laws can be avoided and the
>government's tax collection efforts can be brought to a standstill,
>by the contention that wages are not income...
><P>
><blockquote>...[T]he First Amendment does not provide a broad license to
>file
>frivolous and vindictive lawsuits that harass and intimidate tax
>collection officials and delay tax collection efforts. Such lawsuits
>squander the monies of responsible persons who recognize their
>duty to carry a share of the nation's tax burden.</blockquote>
><P>
>The IRS is authorized to immediately assess a penalty of $500
>upon an individual who files an income tax return containing a
>position which (a) does not contain information from which the
>correctness of the reported tax liability can be determined, (b)
>is substantially incorrect, (c) frivolous or (d) reflects a desire
>(which appears on the purported return) to delay or impede the
>administration of the Federal income tax laws. Sec. 6702 [1986
>Code].
><P>
>To attack the waste of scarce judicial resources by tax protest
>activities, the Tax Court may require the taxpayer to pay to the
>United States a penalty of up to $25,000, whenever it appears
>to the Tax Court that the taxpayer's position is frivolous, groundless,
>or has been maintained primarily for delay. Sec. 6673 [1986 Code].
>See:<I> Coleman</I>, 50 TCM at 120 (where damages under IRC Sec.
>6673 were awarded to the government).
><P>
>The Supreme Court and a U.S. Court of Appeals are also authorized
>to impose penalties upon the taxpayer in any case where the decision
>of the Tax Court is affirmed and it appears that the appeal is
>frivolous, groundless or instituted primarily for delay. Sec.
>7482 (c) (4) [1986 Code] Thus, the tax protestor's efforts to
>avoid payment of income taxes may result in payment of significant
>penalties in addition to the income taxes he or she attempted
>to avoid.
><P><hr>
><h4><Center>Act on Those Beliefs -- Go to Jail</h4></Center>
><P>
>Tax protestor gibberish will not insulate you from a criminal tax evasion
>conviction.
>The Supreme Court in <I>Cheek v US</I>, 91-1 USTC 50,012 (1991),
>expressly
>stated that a tax protestor's argument, which included the litany of
>claims that taxes were unconstitutional, were clearly frivolous
>and were not objectively reasonable (meaning that no reasonably objective
>person would believe in the merits of those arguments). In Cheeks, the
>taxpayer,
>who was convicted of tax evasion for failing to file income tax
>returns, argued that he was, in effect, "duped" by the
>tax protestor rhetoric and honestly believed that he was not a
>taxpayer under the Internal Revenue Code. Cheeks claimed he attended
>seminars, listened to attorneys and engaged in self-study regarding
>the unconstitutionality of federal tax system. He claimed that
>because of this "indoctrination," he sincerely believed
>that the tax laws were unconstitutional.<p>
>
>Some argument!! Once the tax protestor movement finally makes it to the
>Supreme Court and the only defense to the crime of tax evasion is that
>the protestor was stupid and brainwashed into believing the movement's
>propaganda !<p>
>
>The Supreme Court sent
>the case back for a retrial, stating that to convict him of tax
>evasion the government had to prove that Mr. Cheek did not have
>a good faith belief that he was complying with the tax laws. The Court
>of Appeals erroneous held that Cheek was not entitled to raise the good
>faith belief argument because no reasonably objective person would ever
>believe he did not have an obligation to comply with the federal tax
>system.
>At the retrial, Cheek was once again convicted of tax evasion,
>was fined heavily and was sent to prison. Cheek failed to convince the
>trial that he had a good faith belief in his position. The same result
>will befall those tax protestors who fail to file tax returns: If
>caught, expect to go to prison for tax evasion.
><P>
>The <I>Cheek</I> case is interesting because it graphically demonstrates
>that relying on seminars, self-study and even attorney's opinions
>regarding the unconstitutionality of the tax system can (and usually
>will) land you in prison for tax evasion. The Supreme Court made
>it clear that the arguments used by tax protestors have no merit
>whatsoever. Clearly, the tax protestor movement should stand beside the
>flat-earth society in terms of intellect and credibility.
><P><hr>
><CENTER><h4>CONSTRUCTIVE PROTEST: POLITICAL ACTION AND TAX PLANNING</h4>
></CENTER>
><P>
>A taxpayer has the legal and moral right to decrease his or her
>tax liability through means which the law permits. <I>Automatic
>Canteen Company of America v State Board of Equalization</I>,
>238 Cal. App. 2nd 372 (1965). However, tax protestors have used,
>and will likely continue to develop, a variety of groundless arguments
>in their attempts to circumvent federal income tax laws. Rather
>than waste time, energy and money in such futile pursuits, those
>opposed to paying taxes are best advised to use their resources
>in the political arena and in learning about legal means to reduce
>their tax liability. Tax protestors can support candidates and
>laws that will reduce the dreaded tax bite from every dollar earned.
>They can also become informed about legal ways to conduct their
>business affairs and plan their estates to reduce their tax liability.<p>
>
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>
========================================================================
Paul Andrew Mitchell : Counselor at Law, federal witness
B.A., Political Science, UCLA; M.S., Public Administration, U.C. Irvine
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