by Pamela Williams
I am now researching the rights of the American Taxpayer. Has any taxpayer fought the IRS and won? In fact, yes! The first case we will discuss is www.supremecourt.gov/opinions/11pdf/11-139.pdf
The tax code generally allows the IRS to audit three years back, and six in some cases. The U.S. Supreme Court in U.S. v. Home Concrete & Supply, LLC has dramatically cut back on IRS reaches into six year territory. It is an absolutely positive win for the American taxpayer.
The main rule is that the IRS time to audit runs three years after filing or due date. However, the IRS gets double time for a substantial understatement of income – where you omit 25% or more. This debate is over.
The Supreme Court agreed to decide if the IRS can go back six years or only three. In the cases:
- HomeConcrete & Supply v. U.S. – Fourth Circuit
- Burks v. U.S. and Equipment Holding Co. LLC v. Comm’r – Fifth Circuit
- Bakersfield Energy Partners v. Comm’r
The IRS lost so was limited to three years!
The Home Concrete and Supply case was a tax shelter case, and the High Court stuck to three years.
The taxpayer win in the Home Concrete and Supply case will have a huge trickle down effect, too. A top tax lawyer, Robert McKenzie said four of his clients with similar issues would reap tax savings approaching $40 million. www.supremecourt.gov/opinions/11pdf/11-139.pdf
Here are some quotes I would like to share with you that seem to fit this subject:
“Your mind will muse on the terror: “Where is the one who counted? Where is the one who weighed the tribute? Where is the one who counted the towers?” No longer will you see the insolent people, the people of an obscure speech that you cannot comprehend, stammering in a language that you cannot understand.”
– Isaiah 33, verses 18-19.
“To lay with one hand the power of government on the property of the citizen, and with the other to bestow it on favored individuals… is nonetheless robbery because it is done under the forms of law and is called taxation.”
– U.S. Supreme Court – Loan Association v. Topeka (1874).
“In a recent conversation with an official at the Internal Revenue Service, I was amazed when he told me that, “If the taxpayers of this country discover that the IRS operates on 90% bluff, the entire system will collapse.””
– Senator Henry Bellmon, 1969.
OK…lets move ahead. Here we have another case I want to look at:
What is the significance of the 1991 Supreme Court case, Cheek vs. U.S.?
Cheek v. U.S. (No. 89-658; 1991 U.S. Lexis 348; 1991 WL 422 [U.S.]) This Supreme Court case represents a major turning point for those seeking to defend their rights against the IRS. Prior to this case, many courts applied the so-called “Cooley rule,” which was effectively used to prevent people from entering evidence for their own defense in tax cases. Typically, prosecutors would file preliminary motions prohibiting defendants from entering evidence to defend themselves. Thus, most tax prosecutions occurred where the defendants were not allowed to defend themselves!
The Cheek decision changed that. Among other things it found:
(a) Defendants may enter evidence in their defense.
(b) Defendants can provide a “good faith” defense: if they sincerely believed (no matter how irrational the belief) that they didn’t have to file and pay income tax, then they can’t be guilty of a crime.
Lets look at another case:
What is the significance of the 1991 Fifth Circuit Court of Appeals case, Ramon/Dolores Portillo vs. Internal Revenue?
Ramon and Dolores Portillo v. Commissioner of Internal Revenue. (932 F.2d 1128 [5th Cir., 1991]) The Cheek case was a severe blow to the IRS in criminal cases. The U.S. Court of Appeals of the Fifth Circuit likewise dealt a severe blow to the IRS in civil cases. The court effectively found that in the case of an IRS assessment of tax deficiency, the burden of proof shifts to the IRS. In other words, they have to prove that you owe them money.
OK…now lets take a serious look at whether there is a law which states we must pay taxes.
Is it possible for Americans to legally stop paying income taxes?
It is possible for most Americans to legally stop paying both federal and state income taxes. This applies to most Americans who live and work in the 50 States. It does not necessarily apply to Americans working for the federal government, or those who work in federal military installations. Anyone who has entered into a contract with the IRS to pay them, has to fulfill that contract.
How does the IRS tricks its victims into becoming “liable?”
The IRS sees it this way: By sending a 1040 tax return to the IRS, you voluntarily assess yourself, you acquiesce to IRS jurisdiction, and you become “liable” for federal income tax. Essentially, you enter into a contract with them.
Alternatively, when you open a bank account, on your signature card you sign something like, “Under penalty of perjury I certify that… The number shown on this form is the correct taxpayer identification number.” The signature card (without your knowledge) may also commit you to adhere to all current and future IRS regulations. Simply by opening a bank account you condemn yourself to being a “taxpayer” and you swear that your “social security number” is your “correct taxpayer identification number.”
What does the U.S. Constitution say about federal jurisdiction and how does this affect who is subject to federal income tax?
Two clauses in the Constitution define federal jurisdiction:
(a) Article I, Section 8, Clause 17: “The Congress shall have the power to exercise exclusive legislation, in all cases whatsoever, over such district (not exceeding ten miles square) as may, by cession of particular States, and the acceptance of Congress, become the seat of the Government of the United States; and to exercise like authority over all places purchased by the consent of the Legislature of the State in which the same shall be, for the erection of forts, magazines, arsenals, and other needful buildings…”
(b) Article IV, Section 3, Clause 2: “The Congress shall have the power to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the United States…”
The territorial and legislative jurisdiction of the U.S. Congress extends to the ten square miles of Washington DC, military installations where States have explicitly ceded authority to the federal government, and U.S. Territories such as Puerto Rico, Guam, American Samoa, and the Virgin Islands. In accordance, IRS income taxes apply (if they apply at all) to people who live and/or work in these areas, or who work for the federal government.
Why, in its literature, does the IRS consistently say that the federal income tax is based on “self-assessment and voluntary compliance?”
IRS literature often uses the terms “self-assessment” and “voluntary compliance.” The reason for this is that senior IRS personnel know that the law does not require most Americans to file income tax returns. The income tax does not apply to most Americans unless they voluntarily enter into a contract with the IRS. By filling out, signing, and filing an income tax return you voluntarily enter into a contract with the IRS. Once you have entered into such a contract it is not easy to get out of it. Tax abatement service companies provide the expert support to terminate the contract.
Like all government agencies, the IRS has a mission. Its mission as published in the Federal Register of March 25, 1974, includes: “The mission of the Service is to encourage and achieve the highest degree of voluntary compliance… ” Do IRS Commissioners agree with the voluntary nature of federal income tax?
“Each year American taxpayers voluntarily file their tax returns and make a special effort to pay the taxes they owe.” Johnnie M. Walker, IRS Commissioner, 1971, Internal Revenue 1040 Booklet.
“Our tax system is based on individual self assessment and voluntary compliance.” Mortimer Caplin, IRS Commissioner, 1975 Internal Revenue Audit Manual.
“In fairness to the millions of taxpayers who voluntarily file, report all their income and pay the tax due… .” Jerome Kurtz, IRS Commissioner, 1979 Internal Revenue Annual Report.
“The IRS’s primary task is to collect taxes under a voluntary compliance system.” Jerome Kurtz, IRS Commissioner, 1980 Internal Revenue Annual Report.
According to Alan Stang (Taxscam: How The IRS Swindles You And What You Can Do About It), Robert J. Brann, Chief of Technical Services Branch, IRS, Washington, D.C., wrote to a “gentleman in New York” on March 11, 1981, “… In carrying out its responsibilities for administering the federal income tax laws, the Service encourages voluntary compliance by taxpayers. Voluntary compliance places on tax payers the initial responsibility for deciding whether under the law they are required to file returns, and the responsibility for paying any tax that may be due… ”
“… Encourage and achieve the highest possible degree of voluntary compliance… ” Harold M. Browning, IRS District Director, Hawaii, 1984.
“Let’s not forget the delicate nature of the voluntary compliance tax system… ” Lawrence Gibbs, IRS Commissioner, Las Vegas Review Journal, May 18, 1988.
“We don’t want to lose voluntary compliance… We don’t want to lose this gem of voluntary compliance.” Fred Goldberg, IRS Commissioner, Money magazine, April, 1990.
During the Eighty-Third Congress in 1953, Dwight E. Avis, head of the Alcohol and Tobacco Tax Division, Bureau of Internal Revenue, testified before the Ways and Means Committee, “Let me point this out now: Your income tax is 100 percent voluntary tax, and your liquor tax is 100 percent enforced tax. Now, the situation is as different as night and day.”
The tax return for a manufacturer of tobacco products says, “The information is mandatory by statute. (26 USC 5061, 5703).” All mandatory tax returns mention penalties for not filing, for example, the Alcoholic Beverage Tax Return states, “… punishable upon conviction by a fine of not more than $100,000.00… ” Check your 1040 for the statute that says you must file, and the penalty for not filing – you won’t find them.
Congress has a legal research branch called the Congressional Research Service. A letter, dated June 26, 1989, from the office of Senator Daniel K. Inouye in Hawaii to a tax consultant Fred Ortiz states, that based on the research performed by the Congressional Research Service, “there is no provision which specifically and unequivocally requires an individual to pay income taxes.”
Let me cite three court cases that seem to support the notion that the federal income tax is voluntary:
“Our system of taxation is based upon voluntary assessment and payment, not upon distraint [seizure by distress].” Flora v. U.S., 362 U.S. 145, 176 (1959).
In case of any ambiguity of statutory construction, the doubt should be resolved in favor of the taxpayer, not the government. Greyhound Corp. v. U.S., 495 F. 2d 863 (1974).
“The taxpayer must be liable for the tax. Tax liability is a condition precedent to the demand. Merely demanding payment, even repeatedly, does not cause liability… For the condition precedent of liability to be met, there must be a lawful assessment, either a voluntary one by the taxpayer, or one procedurally proper, by the IRS. Because this country’s income tax system is based on voluntary assessment, rather than distraint [seizure by distress], the Service may assess the tax only in certain circumstances and in conformity with proper procedures.” Bothke v. Fluor Engineers & Construction, Inc., Ninth Circuit (1983).
The Fifth Amendment to the U.S. Constitution states, “No person shall… be compelled in any criminal case to be a witness against himself.” However, the Supreme Court has ruled:
The Fifth Amendment “applies alike to criminal and civil proceedings.” McCarthy v. Anderson, 266 U.S. 34.
“There can be no question that one who files a return under oath is a witness within the meaning of the [Fifth] Amendment.” Sullivan v. U.S., 15 F2nd 809.
“The information revealed in the preparation and filing of an income tax return is, for Fifth Amendment analysis, the testimony of a “witness” as that term is used herein.” Garner v. U.S., 424 U.S. 648.
Who are the people who have most to fear from the IRS?
Those who file tax returns are most at risk. Because of the ambiguities of the Internal Revenue Code it is impossible to file a tax return without the IRS being able to nail you for filing a false return or committing perjury.
High-profile people like Leona Helmsley, Willie Nelson, and the late Red Foxx, who can be nailed as examples – providing wide media exposure.
People who use IRS-handmaiden lawyers and/or accountants to assist them in their tax affairs.
Tax protestors who stop filing and/or paying without properly terminating their contracts with the IRS.
The people who have least to fear from the IRS are those who have never entered into a contract with the IRS, those who know the weaknesses of the IRS, those who have properly “untaxed” themselves under the guidance of a competent tax abatement service company, and those who have organized their personal affairs so they don’t own any assets and don’t have any bank accounts the IRS or other government looters can seize.
It is important that you appreciate that the Internal Revenue Code is so complex and convoluted that nobody can understand it. This means that whatever tax return you file can be “proved” by the IRS to constitute fraud and perjury.
“Well, it’s a system so utterly complex and ultimately inexplicable that half the time the tax professionals themselves aren’t sure what the rules are – a system that even Albert Einstein is said to have admitted he couldn’t begin to fathom. You know, it’s said that his hair didn’t look that way until after he experienced his first tax form.” – Ronald Reagan, 1985.
Every year since 1987 Money magazine has run a contest in which 50 tax preparers complete the federal income tax return for a hypothetical family. In 1988 there were ten correct returns, in 1989 two, in 1990 one, and in 1991 zero. For the 1991 tax year the “target tax” was $26,619 – the tax amount for a correct tax return. Not one of the professional tax preparers got it right. At the low extreme, one tax preparer calculated the tax due as $16,219. She spent 25 hours on the job and charged a fee of $750. At the high extreme, another professional tax preparer calculated the tax due as $46,564. It took him 40 hours and he charged $3,000.
The contestants presumably fancied themselves as expert tax preparers, and did their utmost to win first prize. They consisted mostly of professional CPAs and former IRS agents. If you take your papers and records to two “professional tax preparers,” one might calculate your tax as $16,000, and the other as $46,000! Need I say any more?
Note that if you had hired any of these professionals to prepare your tax return, the result could have been prosecution for fraud and perjury. Not one of them got it right.
Here are a list of books you must read before you can safely take on the IRS and win:
- Congressman George Hansen: To Harass Our People: The IRS and Government Abuse of Power (Positive Publications, Box 23560, Washington DC 20024).
- Donald W. MacPherson: Tax Fraud & Evasion: The War Stories (phone 1-800-BEAT-IRS).
- Mitch Modeleski: The Federal Zone: Cracking the Code of Internal Revenue (Account for Better Citizenship, c/o PO Box 6189, San Rafael, California Republic, PZ 94903-0189/TDC).
- Irwin A. Schiff: The Biggest Con: How Government is Fleecing You (Freedom Books, 60 Skiff St #300, Hamden, CT 06517).
- Irwin A. Schiff: The Federal Mafia: How It Illegally Imposes and Unlawfully Collects Income Taxes (Freedom Books, 60 Skiff St #300, Hamden, CT 06517).
- Alan Stang: Tax Scam: How the IRS Swindles You and What You Can Do About It (Mount Sinai Press, Research Publications, PO Box 84902, Phoenix, AZ 84902
OK…now lets look at another side of the issue: You must pay taxes.
Law Title 26 of the United States code, Subtitle A, Chapter 1, Subchapter A, part I. It starts with “There is hereby imposed on the taxable income … a tax determined in accordance with the following table.”
The Code goes into an excruciating amount of detail about what is taxable, what is not, who must pay, what doesn’t count, etc. etc. etc. Many tax protestors will read this over and argue that even though it says what the taxes are, how they’re calculated, and the like, it never actually says you have to pay them.
Even if the tax code is not written so that, for every possible reading, the intended payers are the actual payers, the courts have ruled that, essentially, the document means what its writers meant it to, and grammar be damned you have to pay what the code says you owe. Some people still refuse to pay. Often, they end up in court. Sometimes, they even win their cases. The problem is this: even if some people win their cases, the average result is that a tax protestor ends up paying the taxes owed. Plus fines. Plus, his lawyers will have some extra income from defending him, and they’ll pay taxes on that.
In other words, it’s not practically effective. But let’s suspend our disbelief for a bit, and ask what would happen if people started winning these cases — if the jury agreed that the government had accidentally omitted a crucial clause from a critical sentence, and nobody legally owed income taxes. What would happen is that Congress would hastily meet, add back the offending clause, and be done with it. They passed the Sixteenth Amendment specifically to authorize income taxes.
The Sixteenth Amendment (Amendment XVI) to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on the United States Census. This amendment exempted income taxes from the constitutional requirements regarding direct taxes, after income taxes on rents, dividends, and interest were ruled to be direct taxes in the court case of Pollock v. Farmers’ Loan & Trust Co. (1895). The amendment was adopted on February 3, 1913.
In conclusion, we have examined both sides of the issue in paying taxes in America: do you, or don’t you? Each man has to do what is best for him. However, the one thing you must have on your side is knowledge, which in turn gives you the wisdom to make an informed decision. I hope I have helped you with that. Now, I think I am more confused than ever.