No Liability: Understanding the income tax laws

Thursday, February 23, 2006

Understanding the income tax laws

Post 7 of 11

Now let’s turn our attention to the income tax statutes. We start logically by finding the contents of the title, gathered here in one place for our convenience:

Title 26 United States Code

Subtitle A. Income taxes

Subtitle B. Estate and gift taxes

Subtitle C. Employment taxes

Subtitle D. Miscellaneous excise taxes

Subtitle E. Alcohol, tobacco, and certain other excise taxes

Subtitle F. Procedure and administration

Subtitle G. The joint committee on taxation

Subtitle H. Financing of presidential campaigns

Subtitle I. Trust fund code

Subtitle A. Income taxes

Chapter 1. Normal taxes and surtaxes

Chapter 2. Estate and gift taxes

Chapter 3. Withholding of tax on nonresident aliens and foreign corporations

Chapter 4. Rules applicable to recovery of excessive profits on government contracts

Chapter 5. Tax on transfers to avoid income tax

Chapter 6. Consolidated returns

Chapter 1. Normal taxes and surtaxes

Subchapter A. Determination of tax liability

Subchapter B. Computation of taxable income

Subchapter C. Corporate distributions and adjustments

Subchapter D. Deferred compensation, etc.

and so forth to

Subchapter V. Title 11 cases

Subchapter A. Determination of tax liability

Part I. Tax on individuals.

Part II. Tax on corporations.

Part III. Changes in rates during taxable year.

Part IV. Credits against tax.

[Part V. repealed]

Part VI. Minimum tax for tax preferences.

Part VII. Environmental tax.

Part VIII. Supplemental medicare premium.

Part I. Tax on individuals.

Sec. 1. Tax imposed.

Sec. 2. Definitions and special rules.

Sec. 3. Tax tables for individuals having taxable income of less than $20,000.

[Sec. 4. repealed]

Sec. 5. Cross references relating to tax on individuals.

From the above it is assumed that the imposition and liability statements will be found within section 1, or at least within Part 1. Here is Section 1 minus the tables:

§ 1. Tax imposed

(a) Married individuals filing joint returns and surviving spouses.--

There is hereby imposed on the taxable income of--

(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and

(2) every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following table:

(b) Heads of households--

There is hereby imposed on the taxable income of every head of household (as defined in section 2(b)) a tax determined in accordance with the following table:

There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or a head of household as defined in section 2(b) who is not a married individual (as defined in section 7703) a tax determined with the following table:

(d) Married individuals filing separate returns--

There is hereby imposed on the taxable income of every married individual (as defined in section 7703) who does not make a single return jointly with his spouse under section 6013, a tax determined in accordance with the following table:

(e) Estates and trusts--

There is hereby imposed on the taxable income of --

(1) every estate, and

(2) every trust,

taxable under this subsection a tax determined in accordance with the following table:

(f) Adjustments in tax tables so that inflation will not result in tax increases--

(g) Certain unearned income of minor children taxed as if parent’s income--

(h) Maximum capital gains rate--

This is from the 1993 version. There is the expected imposition phrases, but the liability statement is clearly missing.

Since the Privacy Act was passed all government forms are required to state where they get their legal authority to ask for information. It makes sense that one possible source of their legal authority might be the statute(s) which impose liability for the tax. Here is the Privacy Statement from Instructions for Form 1993 1040:

Our legal right to ask for information is Internal Revenue Code sections 6001, 6011, and 6012(a) and their regulations.

Privacy Act and Paperwork reduction Act Notice

Here are those sections:

Subtitle F. Procedure and administration

Chapter 61. Information and returns

§ 6001. Notice or regulation requiring records, statements, and special returns

Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such regulations as the Secretary may from time to time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title.

§6011. General requirement of return, statement, or list

(a) General rule

When required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title... shall make a return or statement according to the forms and regulations prescribed by the Secretary.

§6012. Persons required to make returns of income

(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,...

No statement of liability. It is also curious that they make their claim to authority based on sections which are not even in the income tax subtitle and section 7806(b) basically states that they could, technically, put it anywhere. I will not reproduce the entire code in order to show you something that is not there.

Notice, however, the emphasized phrases in the above statutes. The first two sections obviously do not apply since liability has not yet been stated. The third section presents a couple of interesting problems, but before dealing with those it is useful to ponder the liability issue a little further.

Let’s continue to operate under the assumption that someone must be liable for the income tax. Let’s consider an employer/employee interaction, the most common interaction in which the income tax is generally collected and paid. In this case it is the employer who pays the government taxes withheld from paychecks. Based on this scenario it might be inferred that since the employer paid the taxes, the employer must have been liable. This is just like when you buy a beer, the excise taxes have been paid by the manufacturer. You have indirectly paid the tax through the price of the beer, but you are not liable for the tax. The beer manufacturer is responsible for self-assessing the taxes and the tax is enforced, not voluntary. If the employer, the source of the money, is liable for the income tax then liability is vested in the source, just like the beer tax. It is then clear that a self-employed person or someone in business for themselves is not liable for the income tax, the customers, as the source, are liable for the income taxes. This kind of confusion is the precise reason other excise tax laws are clear and unequivocal in their language and there is no mistaking them for voluntary.

Returning to the tax code it would appear that in section 6012, they have clearly stated a requirement for filing income tax returns, but due to the ambiguity of income tax liability, there are several problems which complicate the issue for constitutionally protected citizens (as opposed to corporations and any other “persons” without constitutional rights). For the purpose of clarity we need to examine the fourth and fifth amendments to the Constitution in order to understand how these problems arise and how the apparent requirement is negated by these issues.

Consider the Bill of Rights

Now let’s consider the Constitution, particularly the fourth and fifth amendments, and how it can assist us in determining our obligation to file:

"The individual may stand upon his constitutional rights as a citizen. He is entitled to carry on his private business in his own way. His power to contract is unlimited. He owes no duty to the State or to his neighbor to divulge his business, or to open his doors to an investigation, so far as it may tend to incriminate him. He owes no such duty to the State, since he receives nothing therefrom, beyond the protection of his life and property. His rights are such as existed by the law of the land long antecedent to the organization of the State, and can only be taken from him by due process of law, and in accordance with the Constitution. Among his rights are a refusal to incriminate himself, and the immunity of himself and his property from arrest or seizure except under a warrant of the law. He owes nothing to the public so long as he does not trespass upon their rights."

Hale v. Henkel, U.S. Supreme Court, 201 US 43 (1905)

"Who would believe the ironic truth that the cooperative taxpayer fares much worse than the individual who relies upon his constitutional rights."

U.S. v. Dickerson, Seventh Circuit Court of Appeals, 413 F.2d. 1111(1969)

"The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

Fourth Amendment to the U.S. Constitution

"It does not require actual entry upon premises and search for and seizure of papers to constitute an unreasonable search and seizure within the meaning of the Fourth Amendment; a compulsory production of a party’s private books and papers, to be used against himself or his property in a criminal or penal proceeding, or for a forfeiture, is within the spirit or meaning of the Amendment."

Boyd v. U.S., U.S. Supreme Court, 116 US 616 (1886)

"No person... shall be compelled in any criminal case to be a witness against himself."

Fifth Amendment to the U.S. Constitution

"The 5th Amendment applies alike to criminal and civil proceedings."

McCarthy v. Arndstein, U.S. Supreme Court, 266 US 34 (1924)

"It was necessary to claim constitutional immunity before the Government agent and refuse to produce his books."

Vajtauer v. Comm’r of Immigration, U.S. Supreme Court, 273 US 103 (1926)

"Only the rare taxpayer would be likely to know that he could refuse to produce his records to I.R.S. Agents."

U.S. v. Dickerson, 7th Circuit Court of Appeals, 413 F.2d. 1111(1969)

"The information revealed in the preparation and filing of an income tax return is, for 5th Amendment analysis, the testimony of a ‘witness’ as the term is used herein."

Garner v. U.S., U.S. Supreme Court, 424 US 648 (1975)

It is plain to see that our rights as citizens are central issues when considering whether or not to file a return of our income. This brings us back to the Revenue Code section 6012 which supposedly requires the filing of a return. The key word emphasized was “shall.”

Defining a word properly has been a very fundamental legal concept for quite some time, in order to shed light on the practices of the legal system in response to the slippery words like “shall” I share with you the insights of a Harvard University legal scholar:

"When Tom Sawyer and Huck Finn had determined to release Jim by digging under the cabin where he was confined, it seemed to the uninformed lay mind of Huck Finn that some old picks the boys had found were the proper implements to use. But Tom knew better. From reading he knew what was the right course in such cases, and he called for case-knives. “It doesn’t make no difference,” said Tom, “how foolish it is, it’s the right way and it’s the regular way. And there ain’t no other way that I ever heard of, and I’ve read all the books that gives any information about these things. They always dig out with a case-knife.” So in deference to the books and to the proprieties the boys set to work with case-knives. But after they had dug till nearly midnight and they were tired and their hands were blistered and they had made little progress, a light came to Tom’s legal mind. He dropped his knife and, turning to Huck, said firmly, “Gimme a case-knife.” Let Huck tell the rest:

“He had his own by him, but I handed him mine. He flung it down and says, ‘Gimme a case-knife.’

“I didn’t know just what to do-- but then I thought. I scratched around amongst the old tools and got a pickax and give it to him, and he took it and went to work and never said a word.

“He was always just that particular. Full of principle.”

"Tom Sawyer had made over again one of the earliest discoveries of the law. When legislation or tradition prescribed case-knives for tasks for which pickaxes were better adapted, it seemed better to our forefathers, after a little vain effort with case-knives, to adhere to principle-- but use the pickax. They grouted that law ought not to change. Changes in law were full of danger. But, on the other hand, it was highly inconvenient to use case-knives. And so the law has always managed to get a pickax in its hands, though it steadfastly demanded a case-knife and to wield it in the virtuous belief that it was using the approved instrument.

Spirit of the Common Law, Harvard University Professor Roscoe Pound, (1921)

Here are some relevant court decisions:

"As against the government, the word ‘shall’ when used in statutes is to be construed as ‘may,’ unless a contrary intent is manifest."

Cairo & Fulton R.R. Co. v. Hecht, U.S. Supreme Court, 95 US 170 (1877)

"If necessary, to avoid unconstitutionality of a statute, ‘shall’ will be deemed equivalent to ‘may.’"

Gow v. Consolidated Coppermines Corp., Court of Chancery of Delaware, 165 A. 136 (1933)

"The word ‘shall’ in a statute may be construed as ‘may’ where the connection in which it is used or the relation to which it is put with other parts of the same statute indicates that the legislature intended that it should receive such construction."

Ballou v. Kamp, U.S. Circuit Court of Appeals for the District of Columbia, 92 f.2d. 556 (1937)

"‘Shall’ in a statute may be construed to mean ‘may’ in order to avoid constitutional doubt."

George Williams College v. Village of Williams Bay, Supreme Court of Wisconsin, 7 NW 2d. 891 (1943)

"The word ‘shall’ in statutes may be construed to mean ‘may,’ particularly in order to avoid a constitutional doubt."

Fort Howard Paper Co. v. Fox River Heights Sanitation District, Supreme Court of Wisconsin, 26 NW 2d. 661 (1947)

As the last two decisions make clear, constitutional doubt must be present in order to invoke the permissive interpretation of the term ‘shall.’ Corporations, as slaves of the state, do not have constitutional rights, therefore the statement I made earlier about corporations being undoubtedly liable to income taxes is true. For those of us who have constitutionally protected natural rights, the ambiguity of the liability issue is paramount. As the decisions I cited in discussing the importance of clear legal language, ambiguity is not to be tolerated when liability to taxation is at issue for a constitutionally protected citizen Forcing citizens who are not liable for income taxes to divulge any information to any government agency should require a court order, since any involuntary statements would obviously raise constitutional doubts based on the right to remain silent.

The facts as presented thus far:

1. There is no statement of liability for the income tax.

2. Without liability to income taxes your constitutional rights under the fourth and fifth amendments negate any supposed requirement for the filing of income tax returns, nor can you be required to reveal any information to the IRS.