Thursday, February 23, 2006

 

Introduction

Post 1 of 11

This blog is about the U.S. individual income tax system. In case you have not already heard, it is a voluntary system. Of course, you have to structure your affairs carefully in order to make a proper and legal choice not to volunteer. The system is definitely setup for those who volunteer, in fact, you will have a hard time finding many who have not volunteered. And most of the people you meet cannot even tell you when it was they volunteered, which is to say that the system is extremely good at perpetuating compliance. If you doubt my word about the voluntary nature of income taxes, would you believe Margaret Milner Richardson, Commissioner of the Internal Revenue Service? In 1993 she stated, “Thank you for making this nation’s tax system the most effective system of voluntary compliance in the world.”

The crucial question is whether or not it is possible to make the choice to not volunteer in a manner that does not create more problems than its worth. Obviously my answer is yes, but not for everybody. Structuring your life in order not to volunteer to be liable for income taxes may involve giving up some of the advantages our banking and business systems offer only to players of the IRS game. Of course most of the people I expect to be most interested in the information I have to offer are probably not going to be inconvenienced by giving up those advantages. Those who are most likely to gain advantage from the banking and business systems probably have enough money that they can afford to hire professionals to play the game for them and would be highly inconvenienced, if not persecuted for attempting to structure their affairs in the ways I present.

I also want to make it clear that I am only dealing with the income tax system and not any other taxes. The income tax system is the only one which has the voluntary compliance phrase attached to it, the others are mandatory for those made liable by law and have never been claimed to be nor ever mistaken for voluntary.

This blog is presented with the understanding that the author/publisher is not engaged in rendering legal, accounting, financial, or other professional advice. If expert assistance is required, the services of a professional should be sought. This material is presented for educational, informational and philosophical purposes only. The reader is strongly encouraged to investigate all assertions made herein by personal investigation of the public record.


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# posted by No Liability @ 5:56 PM 0 comments
 

Evaluating Your Personal Attitude

Post 2 of 11

The best place to start your process of choosing a tax strategy is with your own attitudes. If you believe you will burn in hell for not filing a tax return, you will not be happy with becoming a non-filer. If you believe you will burn in hell for supporting a government that is responsible for supplying the weapons that support wars around the world, then you will not be happy with total compliance. Examining your own beliefs is the only way to establish a reliable basis for deciding what course of action will best suit you.

There are a variety of general strategies; total compliance, partial compliance, legal assertion of rights, moral assertion of rightness, or apathetic ignorance, to name a few of the more popular ones. Every strategy has its hazards and its benefits, the reality of which depends upon your own experience and your perception of others peoples reported experiences. If you know people who have had first hand dealings with the IRS you will have a different perception than another person who's knowledge is only based on the evening news stories about the IRS. The truth is that evaluating the risks is, at best, a guessing game. No matter what strategy you choose to examine, there are always success stories and just as many or more horror stories if you search long enough.If you go with only the first information you discover about a particular strategy you will be misinformed exactly to the degree that the story you heard was biased by the storyteller. And every storyteller has a bias, including me. Your own bias is going to inform how you evaluate the different sources of information you access. Another word for bias is philosophy, so you need to develop your own philosophy because subscribing to someone else’s philosophy is the best way to get yourself confused and possibly into trouble.

Your emotional and philosophical positions are better indicators of the rightness of any given strategy because the fact is you are going to have to summon your deepest spiritual resources in order to face a serious challenge, regardless of the strategy or philosophy you chose. Even those who choose total compliance get audited or otherwise challenged to defend themselves. Consider that the overwhelming majority of people who go to jail for tax offenses filed returns. Therefore, you are more likely to go to jail for filing a return than for not filing a return. The fundamental fact is that you need to be prepared to defend any course you choose. The most important question to answer is how hard you are willing to fight for whatever choice you make. If you are not willing to fight, then you need to look for a strategy that will be the easiest to get out of a fight easily and quickly. That usually means paying whatever they tell you to pay, and you need to structure your affairs accordingly. If you are willing to fight to the death against war taxes, then you should choose a strategy that will serve your highest purpose and will not get obscured by other issues. No matter what course you take, you must make preparations and anticipate the resistance you may encounter. You are responsible for your choices and your best course is the one you personally believe is right.

You need to get very clear about what issues are important to you. If you seriously pursue an investigation of the information I present, you will undoubtedly find a lot of very angry people who are quick to take moral high ground on legal issues, and others who take the legal high ground on moral issues, and you will hear the stories of how the courts have dealt blows to all different philosophies. If you do not care about legal issues, do not take on a legalistic strategy. You need to know the legal issues, of course, but do not make legal issues central to your arguments unless you are willing to follow though with the legal procedures that will back up your legal arguments. Once you choose an issue or a set of issues, stick to them and keep them consistent. Clarity is the best defense because any jury or judge will at least have respect for your consistency and clarity even if they feel compelled to rule against you.


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# posted by No Liability @ 5:55 PM 0 comments
 

Food for Thought

Post 3 of 11

I offer the following as grist for your mill in considering what issues are worth considering when choosing your relationship to the government. First, what are you supporting with your tax dollars?

Supporting the War Machine?

"What would you do if I came into your office tomorrow with a cup in my hand, asking for contributions to enable me to buy guns and kill a group of people I don’t like.

"Wally Nelson, war tax resister, speaking to an IRS agent

"For many, the only difference between paying for war and participating in war is that the former is less messy and more convenient.

"Although not pacifists, some people have been motivated to act because of the nuclear war threat and the immoral misuse of Government spending. However, many war tax resisters also do not believe that killing or the threat to kill is an acceptable way to solve social or political problems. Frequently, new resisters have expressed a gain in personal power they have felt over their lives upon becoming war tax resisters.

"No matter what motivates those of us who resist war taxes, it is agreed that each one of us is responsible. And part of that responsibility is to reduce our complicity in war and preparation for war."

War Tax Resisters League, Guide to War Tax Resistance, third edition 1986, p.9

Second, if you feel the good things government are supposed to do are more important than the bad, are you obligated to support any organization which performs those functions so poorly?

Wasteful, Inefficient, Unaccountable, Irresponsible Management?

Louis Rukeyser, "By now, practically everybody in America agrees that the government wastes money, an incredible lot of it indeed, a sum with so many zeroes that it is beyond the imagining of anyone who doesn’t happen to be employed as a professional mathematician."

Stan Collander, Director of Budget Analysis for Price Waterhouse in Washington, "Look there’s no doubt that at some point you feel like you’re playing with poker chips. That it has no meaning at some point. And just to give you an example. The federal budget is so large that we tend to round things off to the nearest tenth of a billion when I do all my work. A tenth of a billion is a hundred million dollars, which means that if you came to me and say I’ve got a program that’s 47 million that rounds down to zero."

Stephen Moore, "In 1950 in this country, we spent about $1500 for every child in the public school. That’s again in 1990 dollars. In 1990, we’re spending close to six thousand dollars per pupil in the public school. Now as everyone knows, the public schools were much better in 1950 when we were spending four times less than we are today. Now how can that be? How can it be we’re spending four times more, and yet SAT scores are lower, graduation rates are lower, the types of skills that our students are leaving from high school with are lower. More money does not often lead to better quality. The schools are a very good example of that."

Louis Rukeyser, "Martin, is the basic problem that what we subsidize we get more of, whether it’s unemployment, poverty, or whatever? And what we tax, be it work or savings, we get less of?"

Martin Gross, author of “A Call for Revolution, "Absolutely, and we spend 360 billion dollars on welfare and poverty has gone up from 9 percent in the 70's, to 11 percent in the 80's, to 14 percent today. The federal government — everything it touches turns to dirt. So poverty increases with the more money we spend. As a matter of fact, I’ve come to the conclusion that there’s an inverse reaction to government spending. If we sent a check for $14,700 to every poor family in America, welfare or otherwise, it would cost 115 billion. We would save 200 billion and we would have no poverty and no unemployment."

J. Peter Grace, Chairman of W.R. Grace & Company, and head of the Grace Commission on Government Waste under President Reagan, "I don’t know if you’ve noticed that, I don’t have the chart in front of me, but the debt goes up more than they claim it the deficit is. For instance the deficit is 255 reported fiscal years 1993, but the debt went up 468 billion."

Louis Rukeyser, "Are they lying to us?"

J. Peter Grace, "Oh, the whole accounting system. They have 332 incompatible accounting systems. 319 incompatible payroll systems. Somebody else will say well this is the way we run our books, we’re not lying. But yes, I mean, under normal accounting rules they’re lying all the time. The whole thing is the city is crooked.

"We’re certainly not on the track [to a balanced budget] in the next 10 years, the next 20 years, the next 25 years. Meanwhile, of course, the debt’s going up and interest rates are bound to rise. They’re low now. And that combination is gonna give us a trillion dollar a year interest debt, and that buys nothing. It doesn’t save a human life, it doesn’t do anything for a homeless family. It provides nothing useful at all. Just a waste of money.

Senator William Proxmire, retired after 31 years in Congress, "The Congress perks are fantastic. About a hundred and thirty thousand dollars a year salary, you have a staff that won’t stop. The average Senator, Member of the House, together, three and a half million dollars apiece, apiece, for each Member of the Congress."

Milton Freidman, 1976 Nobel Prize Winner in Economics, "We’ve tried to elect the right people. It doesn’t work. Whether the right people are elected to the Presidency or to Congress. And I do not think we’ll get anywhere that way. But I think in order to really set a limit on government spending we’re going to have to change the institutional arrangements under which the decisions are made to spend your and my money."

There Goes Our Money, A Louis Rukeyser Special, Maryland Public Television, Broadcast April 15, 1994

You Still Pay Anyway!

Finally, I must point out that even if you never file another tax return the rest of your life, you will still pay plenty of taxes. How? Consider a roll of toilet paper. Let’s pretend you buy a four pack at a grocery store. That grocery store received it from a distributor who is working for a manufacturer. That’s three companies who each have many employees, each company is undoubtedly organized as a corporation, and, as such, is a creation of the State. Which literally means the State has sovereign rule over that corporation as it’s property, in law (though not in any other, more practical ways.) Thus there is no question that the corporation is subject to the income tax, and as a mandatory not voluntary tax due to the literal master/slave, creator/created relationship of the State and the corporation.

"The individual unlike the corporation, cannot be taxed for the mere privilege of existing. The corporation is an artificial entity, which owes its existence and charter to the state."

Redfield v. Fisher, Supreme Court of Oregon, 292 P. 813 (1930)

The wording of the tax laws is such that corporations “shall” file returns of income. Meaning that filing is mandatory (I will discuss the permissive interpretation of “shall” later.) Thus the cost of the roll of toilet paper will include the taxes those corporations paid for their privileges to exist as taxable “persons” and have whatever the state chooses to defines as “income.” I will also discuss the meanings of “person” and “income” later. My point is that, as the world currently exists, the saying that you cannot avoid death and taxes is still true. What I am suggesting is the possibility to choose not to be liable for indivdual income taxes in the United States.


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# posted by No Liability @ 5:52 PM 0 comments
 

The IRS Agrees With Me! (On some issues)

Post 4 of 11

There are a few pertinent facts that even the IRS would agree with me on: First, when you file a tax return you are thereby obligated to abide by all of the IRS’s rules and regulations. Think about it like this, if you decide to buy a lottery ticket then you are implicitly agreeing to play by the rules that were set-up in order to play the game. The lottery is another voluntary tax that has been quite successful. The Supreme Court stated the principle of voluntarily assuming obligations in the following way based on the obligation of a water company to provide water. The case arose from the failure of the Greensboro Water Supply Company to supply sufficient water to extinguish a fire that destroyed the property of a Mr. Fisher. The argument was convincingly made that when the company undertook the contractual obligation to supply water to the city of Greensboro it also volunteered to take on all the obligations that are thereby implied (including the obligation to supply adequate water to the city firefighters). Meaning that they became liable to all parties who receive the water, not just the city that signed the contract with the company to provide the water.

"An individual may be under no obligation to do a particular thing, and his failure to act creates no liability; but if he voluntarily attempts to act and do a particular thing, he comes under an implied obligation in respect to the manner in which he does it."

Guardian T&D Co. v. Fisher, U.S. Supreme Court, 200 US 57 (1906)

There is uniform agreement among the authors of books and articles about the IRS (including former IRS agents, journalists and members of congress that their strategies are very predictable. Paul Strassels, a former IRS Agent who wrote All You Need to Know About the IRS: a Taxpayers Guide gives some valuable insights into those strategies. First, they will not tell you, the enemy, any of their secrets. They have no interest in or intention to inform you of your rights, what your options are, who they really are, nor what they can and cannot do. Second, once you are under their power you are their tool. They choose audit victims for they’re ability to inspire others to comply. Or, occaisonally, they will force people to defend every single line of their return for statistical data to increase the efficiency of their computers ability to choose appropriate audit victims. One person’s money is secondary in their quest to inspire compliance through fear. But they are not about to ignore an individual, either. When they decide to investigate someone they are going to wield their “authority” over institutions like banks in ways that may not be legal, but which they get away with because the bank is not going to risk incurring the wrath of the IRS for a minor account.

Another fact is that filing a return is far more likely to land you in jail than not filing. In criminal cases, which are relatively rare due to the expense, there are only two possible crimes you can commit when you are not filing a return. If they choose to pursue a non-filer, they will charge the person with both crimes every time, but they cannot prove one until after they prove the other. The crimes are “willful failure to file” and “willful failure to pay.” If they cannot prove you were required to file, then they automatically cannot prove you were required to pay. The strategy I deal with most here is to structure your affairs so you are not required to file income tax returns. In considering whether or not my suggestions might lead to a criminal act, consider the fact that violation of these particular laws must be “willful.” If you can prove that you hold a “good faith belief” that you are not required to file, they cannot prove you acted “willfully.” I suggest that if you consider the strategy I outline in this book, that you personally conduct research into every case I cite and document your process of studying the law to determine your rightful tax status.

The IRS is reluctant to get involved in criminal prosecution because in criminal prosecutions they are forced, for the first time in their bureaucratic process, to abide by the innocent until proven guilty doctrine. Proving guilt is far more expensive than assuming guilt, they know that and do not like it, therefore they are going to pursue their enemies by bureaucratic means whenever possible. This means that if you are resistant to their threats and coercion they may attempt to invoke their suspiciously tyrannical power to confiscate, seize, or garnish your past, present and future assets and earnings. Their confiscatory power is the most substantial threat they have in their bag of tricks. Fortunately, they are true bureaucrats and will be communicating with you long before they ever resort to such crass violence. According to Paul Strassels the IRS is not capricious with their administrative power because they do not want to have it taken away by Congress. They, theoretically, try to have some modicum of justification before they confiscate. Thus, Paul Strassels advice, and my own is, do not ignore the IRS, they are dangerous if you do.


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# posted by No Liability @ 5:52 PM 0 comments
 

Investigating Tax Laws

Post 5 of 11

My purpose in this section is to present clear and concise information about the income tax laws, relevant court opinions, and the lawful options I see are available. This is not a formal legal argument, it is more like a brief or outline of the elements of creating non-taxpayer status. The process of investigation involves three steps: 1) understanding taxes in general and excise taxes in particular, 2) understanding the income tax statutes, and 3) choosing your tax strategy.

It is basic to the United States tax system that each person is responsible for deciding whether or not they are liable for taxes and then paying the government when taxes are owed, this is called self-assessment and applies to all taxes, not just income taxes. The income tax is an oddity, however, because if you review IRS literature and statements made by IRS officials you will inevitably run into the phrase “voluntary compliance.” Here is a quote from IRS Commissioner Margaret Milner Richardson,

"Thank you for making this nation’s tax system the most effective system of voluntary compliance in the world."

Instructions for form 1993 1040



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# posted by No Liability @ 5:51 PM 0 comments
 

Understanding tax laws, in general

Post 6 of 11

Since the income tax is such a complex and bewildering morass of legalese it is imperative that you are able to ask specific questions about what you are looking for. First, what kinds of different taxes are there and what kind are we dealing with?

"In fact, the two great subdivisions embracing the complete and perfect delegation of the power to tax and the two correlated limitations as to such power were thus aptly stated by Mr. Chief Justice Fuller in Pollock v. Farmers’ Loan & T. Co., 157 US 429, 39 L.ed. 759, 15 Sup. Ct. Rep. 637, at page 557: 'In the matter of taxation, the Constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely: The rule of apportionment as to direct taxes, and the rule of uniformity as to duties, imposts, and excises.'"

"...the conclusion reached in the Pollock Case... recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such..."

Brushaber v. Union Pacific R.R. Co., U.S. Supreme Court, 240 US 1 (1915)

So the income tax is an indirect tax called an excise, what is an excise?

"Excises are ‘taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.’"

Flint v. Stone Tracy Co., U.S. Supreme Court, 220 US 107 (1910)

What do normal excise taxes look like? The following are various other excise taxes which have not to my knowledge ever been called, nor mistaken to be, voluntary (portions have been deleted to conserve space):

Title 26 United States Code “Internal Revenue”

Subtitle D. Miscellaneous excise taxes

Chapter 32. Manufacturers excise taxes

Subchapter D. Recreational equipment

Part I. Sporting Goods

§4161. Imposition of tax

(a) Sport fishing equipment

(1) Imposition of tax

There is hereby imposed on the sale of any article of sport fishing equipment by the manufacturer, producer, or importer a tax equal to 10 percent of the price for which it is sold.

(b) Bows and arrows, etc.

(1) Bows and arrows

There is hereby imposed on the sale by the manufacturer, producer, or importer- (A)(B) a tax equal to 11 percent of the price for which so sold.

(2) Parts and accessories

There is hereby imposed on the sale by the manufacturer, producer, or importer- (A)(B) a tax equivalent to 11 percent of the price for which so sold.

§4162. Definitions; treatment of certain resales

(c) Treatment of certain resales

(1) In general

If- (A)(B)(C) then such related person shall be liable for tax under section 4161 in the same manner as if such related person were the manufacturer of the article.

Chapter 36. Certain other excise taxes

Subchapter F. Tax on the removal of hard mineral resources from deep seabed

§4495. Imposition of tax

(a) General rule

There is hereby imposed a tax on any removal of hard mineral resource from the deep seabed pursuant to a deep seabed permit.

(c) Liability for tax

The tax imposed by subsection (a) shall be paid by the person to whom the deep seabed permit is issued.

Chapter 38. Environmental taxes

Subchapter A. Tax on petroleum

§4611. Imposition of tax

(a) General rule

There is hereby imposed a tax at the rate specified in subsection (c) on-

(1) crude oil received at a United States Refinery

(2) petroleum products entered into the United States for consumption, use, or warehousing.

(b)Tax on certain uses and exportation

(1) In general

If- (A)(B) then a tax at the rate specified in subsection (c) is hereby imposed on such crude oil.

(d) Persons liable for tax

(1) Crude oil received at refinery

The tax imposed by subsection (a)(1) shall be paid by the operator of the United States refinery.

(2) Imported petroleum product

The tax imposed by subsection (a)(2) shall be paid by the person entering the product for compensation, use, or warehousing.

(3) Tax on certain uses or exports

The tax imposed by subsection (b) shall be paid by the person using or exporting the crude oil, as the case may be.

Subchapter B. Tax on certain chemicals

§4661. Imposition of tax

(a) General rule

There is hereby imposed a tax on any taxable chemical sold by the manufacturer, producer, or importer thereof.

(c) Use and certain exchanges by manufacturer, etc.

(1) Use treated as sale

Except as provided in subsection (b) and (e), if any person manufactures, produces, or imports any taxable chemical and uses such chemical, then such person shall be liable for tax under section 4661 in the same manner as if such chemical were sold by such person.

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

Chapter 51. Distilled spirits, wines, and beer

Subchapter A. Gallonage and occupational taxes

Part I. Gallonage taxes

Subpart A. Distilled spirits

§5001. Imposition, rate, and attachment of tax

(a) Rate of tax

(1) General

There is hereby imposed on all distilled spirits produced in or imported into the United States a tax at the rate of $12.50 on each proof gallon and a proportionate tax at the like rate on all fractional parts of a proof gallon.

§ 5005. Persons liable for tax

(a) General

The distiller or importer of distilled spirits shall be liable for the taxes imposed thereon by section 5001(a)(1).

Subpart C. Wines

§5041. Imposition and rate of tax

(a) Imposition

There is hereby imposed on all wines (including imitation, substandard, or artificial wine, and compounds sold as wine) having not in excess of 24 percent of alcohol by volume, in bond in, produced in, or imported into, the United States, taxes at the rate shown in subsection (b), such taxes to be determined as of the time of removal for consumption or sale.

§5043. Collection of taxes on wines

(a) Persons liable for payment

The taxes on wine provided for in this subpart shall be paid-

(1) Bonded wine cellars

In the case of wines removed from any bonded wine cellar, by the proprietor of such bonded wine cellar, except that- (A) (B)

(2) Foreign wine

In the case of foreign wines, by the importer thereof.

(3) Other wines

... by any person producing, importing, receiving, removing, or possessing such wine; and all such persons shall be jointly and severally liable for such tax with each other as well as with any proprietor, transferee, or importer who may be liable for the tax under this subsection.

Subpart D. Beer

§5051. Imposition and rate of tax

(a) Rate of tax

(1) In general

A tax is hereby imposed on all beer brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States

§5054. Determination and collection of tax on beer

(a) Time of determination

(1) Beer produced in the United States

... The tax imposed by section 5051 on beer produced in the United States shall be determined at the time it is removed for consumption or sale, and shall be paid by the brewer thereof in accordance with section 5061.

Subpart E. General Provisions

§5061. Method of collecting tax

The taxes on distilled spirits, wines, and beer shall be collected on the basis of a return.

Chapter 52. Cigars, cigarettes, smokeless tobacco, pipe tobacco, and cigarette papers and tubes

Subchapter A. Definitions; rate and payment of tax; exemption from tax; and refund and drawback of tax

§5701. Rate of tax

(a) Cigars

On cigars, manufactured in or imported into the United States, there shall be imposed the following taxes: (1)(2)

(b) Cigarettes

On cigarettes, manufactured in or imported into the United States, there shall be imposed the following taxes: (1)(2)

(c) Cigarette papers

On each book or set of cigarette papers containing more than 25 papers, manufactured in or imported into the United States, there shall be imposed a tax of 1/2 cent for each 50 papers or fractional part thereof

§5703. Liability for tax and method of payment

(a) Liability for tax

(1) Original liability

The manufacturer or importer of tobacco products and cigarette papers and tubes shall be liable for the taxes imposed thereon by section 5701

Chapter 53. Machine guns, destructive devices, and certain other firearms

Subchapter A. Taxes

Part II. Tax on transferring firearms

§5811. Transfer tax

(a) Rate-

There shall be levied, collected and paid on firearms transferred a tax at the rate of $200 for each firearm transferred, except...

(b) By whom paid-

The tax imposed by subsection (a) of this section shall be paid by the transferor.

Part III. Tax on making firearms

§5821. Making tax

(a) Rate

There shall be levied, collected, and paid upon the making of a firearm a tax at the rate of $200 for each firearm made.

(b) By whom paid

The tax imposed by subsection (a) of this section shall be paid by the person making the firearm.

As you can see two particular aspects of these laws have been emphasized, the imposition of the tax and the liability statement. Notice the consistent use of particular phrases. Notice that these two statements always occur within the same section (§) or within a subpart. It is clear that these tax laws leave little to the imagination by using very specific language. There are very good reasons for this clarity and precision:

"In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the Government, and in favor of the citizen."

Gould v. Gould, U.S. Supreme Court, 245 US 151, 153 (1917)

"If the words are doubtful, the doubt must be resolved against the Government and in favor of the taxpayer."

U.S. v. Merriam., U.S. Supreme Court, 263 US 179 (1923)

"The provision is part of a taxing statute; and such laws are to be interpreted liberally in favor of the taxpayers."

Bowers v. N.Y. & Albany, U.S. Supreme Court, 273 US 346 (1926)

"It is elementary that tax laws are to be interpreted liberally in favor of taxpayers and that words defining things to be taxed mat not be extended beyond their clear import. Doubts must be resolved against the Government and in favor of taxpayers."

Miller v. Nut Margarine Co., U.S. Supreme Court, 284 US 498, 508 (1931)

"...the statute in that respect [is] ambiguous. In such a situation the beneficiary is entitled to a favorable construction because liability for taxation must clearly appear."

Higley v. Commissioner of Revenue, Eighth Circuit Court of Appeals, 69 F.2d 160 (1934)

"A tax is a legal imposition exclusively of statutory origin, and, naturally, liability to taxation must be read in the statute, or it does not exist."

Bente v. Bugbee, New Jersey Supreme Court, 103 NJL 608 (1927)
(emphasis mine)

So it is obvious that in order for a statute to validly impose a tax it must be clear and unequivocal in its language. Let’s pretend you are a brewer of large quantities of beer. It is clear that you are legally obligated as a “brewer” by sections 5051, 5054, and 5061 to pay taxes and to make returns regarding your brewing operations. In this case it is a clear cut job for an IRS investigator to identify the exact items you are producing and on that basis determine that you might be avoiding your legal duty if you have not filed tax returns recently. In regards to those very taxes there are provisions in the law which empower armed agents of the government to do just that type of investigating. While there is an element of self-assessment it would be absurd to claim that these taxes are voluntary.


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# posted by No Liability @ 5:50 PM 0 comments
 

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:

(c) Unmarried individuals (other than surviving spouses and heads of households)--

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.


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# posted by No Liability @ 5:48 PM 0 comments
 

IRS Propaganda

Post 8 of 11

The IRS has done you a service by issuing a brochure that appears to refute some of my arguments. First of all you can assume that if you use the arguments as they are presented in the IRS brochure you are assured of losing. Secondly you have to evaluate the following point by point rebuttal to the brochure and decide if the rebuttal raises substantial enough issues to act in accordance with the position outlined in this book.

The brochure is entitled, “Why do I have to pay taxes?” It is Publication 2105 (Rev. 10-97), Catalog Number 23871N, order your copy today!

The first panel inside entitled “Just the Facts” is straightforward and does not say anything I disagree with. I will point out that #4 is only true as long as the implied phrase, “when required” is included as it is in items 5 and 6.

#4

The courts have historically held there are no Constitutional or legal grounds for failure to file tax returns and failure to pay taxes.

#5

The term voluntary compliance means that each of us is responsible for filing a tax return when required and for determining and paying the correct amount of tax.

#6

Failure to file required tax returns and failure to pay taxes may result in criminal and/or civil penalties.

IRS Publication #2105 (Rev. 10-97)

None of the facts they present has any bearing on the consequences of structuring your affairs so that you are not required to file tax returns. And I will reiterate the Supreme Court’s statement about structuring your affairs to avoid (as distinguished from evade) taxes:

"By means which the law permits, a taxpayer has the right to decrease the amount of what otherwise would be his taxes, or altogether to avoid them."

Gregory V. Helvering, 293 US 465 (1934)

The second panel, which starts off , “Taxes are what we pay for a civilized society” does not present anything substantially worth arguing.

The question they raise in the first paragraph is reasonable enough, “Is the strategy legal?” And, the answer lies in your definition of the law. There is not one tax alternative that does not address the legality of their arguments. For the moral arguments they usually argue that God’s law or moral law is the highest law and therefore supersedes the laws of man. Some of the “patriots” argue that the Constitution as they interpret it is the highest law and therefore they are right and any court that disagrees must be in a conspiracy to pervert or enslave the people. (The IRS’s own statement about legality is based on the converse assumption that the IRS proclamations of what’s legal is the highest form of law and that anyone who disagrees is an illegal tax protester or a tax evader.) In practical reality you have to look to how the laws are applied to individual cases and what is successful. Unfortunately there is almost no widely disseminated information that is reasonably objective, therefore you gamble no matter what choice you make.

The irony of their second paragraph is that most of it can also be said of tax preparers and investment advisers as well as illegal tax protesters. Their final statement, “Believe it or not – a number of individuals who market these packages actually pay taxes” is true regardless of whether or not they file income tax returns as I argued earlier. The statement that the only things that you can’t get away from are death and taxes is still true regardless of whether you file a return or not.

The substance of their brochure is inside under the heading, “Arguments.” The format of the arguments section is that they state their version of the argument (usually distorted) and then present their version of the truth.

Introduction

Illegal Tax Protester Groups have used a variety of false or misleading arguments for not paying taxes. They build their complicated arguments that the income tax system is illegal by stringing together unrelated ideas plucked from widely conflicting court rulings, dictionary definitions, government regulations and other sources. Here are some of the most popular arguments.

IRS Publication #2105 (Rev. 10-97)

I am condoning the payment of taxes which have been assessed or for which liability is clearly established. I also condone non-filing of returns where liability is in question, thus forcing the government to act as assessor and collector once liability is clearly established. I also do not argue that the system is illegal. I fully acknowledge that the system is legal and where liability is clear taxes can and should be assessed and collected by agents of the government when voluntary compliance fails.

Constitutional Argument

Filing a Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy

The Truth

The courts have consistently held that disclosure of the type of routine financial information required on a tax return does not incriminate an individual or violate the right to privacy

IRS Publication #2105 (Rev. 10-97)

It is the mandate of the court system to uphold the constitution and the cases that have tested the principle of constitutionality have been clear on this issue as the IRS is proud to point out. (The corruption of the court system and arguing the court system has failed to uphold the constitution is a popular argument with the “patriots” and neither me nor the IRS are interested in arguing about the court system.) I do not argue that the filing of a return is inherently incriminating, it is irrelevant to my argument whether or not the information on the return could be used to incriminate the individual. The courts have never to my knowledge addressed the constitutionality of forcing returns of citizens who are not liable to any taxes.

I ask whether or not a return can be required of one for whom liability to taxation is not clearly and unequivocally established. By the lack of a liability statement in the income tax statutes Congress has left some doubt about who is liable to pay the tax. (Unless someone volunteers to assess themselves, thereby clarifying the issue. It is unthinkable in the logic of the legal system that someone would voluntarily assess themselves for a tax for which they are not liable, and even if they did, their liability for making the assessment is a fitting consequence for such a mistake. ) I also do not argue that the filing of a form violates the right to privacy guaranteed by the Fourth Amendment. The filing of tax forms is clearly and constitutionally required of those who are made liable for taxes imposed by law. The requirement to file a tax form by those who are not made liable is the question.

Internal Revenue Code Arguments

(1) There is no Internal Revenue Code that imposes taxes; (2) only “individuals” are required to pay taxes; or (3) IRS can only assess taxes against people who file returns.

The Truth

The tax law is found in Title 26 of the United States Code. Section 6012 of the Code makes clear that only people whose income falls below a certain level do not have to file returns. Section 6201 of the Code states that the Secretary of the Treasury is required to make assessments “of all taxes imposed by the title [Title 26].”

IRS Publication #2105 (Rev. 10-97)

This is the most interesting piece of creative writing in the whole brochure. The first statement of the argument has never, to my knowledge, ever been claimed by anyone anywhere (there is a big difference between arguing that the tax was not imposed and arguing that liability to the tax has not been imposed.) I would like to challenge them to show me that argument in publicly distributed materials, but my meager attempt at anonymity has it’s price.

Why would they put in an argument that has never been made? They claimed in the introduction that these “are some of the most popular arguments” and I have heard every one except this one in my process of investigating the tax laws and seeking radical tax information. I would have loved for them to address the liability issue, but they have disappointed me, despite the fact that it is an existing and even quite popular argument among many groups.

The second statement of the argument appears to be a variation on the theme that the legal definitions of the words are crucial to applying them. However, this is another example stating the argument in a way that is obviously false on its face. An obvious question to which their statement could be an answer is “who is required to pay taxes?” The statement as an answer to this obvious question is inadequate and therefore false since the answer is actually anyone who is legally assessed for taxes. The funny thing is that they did not address who is required to pay taxes in their version of the truth.

They, instead, make a questionable interpretation of an unrelated Section of the code that addresses filing of returns. This is suspiciously like the “stringing together unrelated ideas” technique they attribute to the Illegal Tax Protester Groups in the Introduction to this section. The section of the Code they actually refer to is only clear about what they claim when it is applied as a mandatory statement, which is not always a clear issue.

Their statement is true under some circumstances, but may be false under others. If, for instance, an individual is under the impression that he is required to file a return then it is clear that he will dutifully self-assess. If he then finds that his income was below the level required for filing then he is no longer required to file a return despite his belief.

On the other hand, if an individual is under the belief that he is only required to file a tax return when his liability to taxation is clearly stated in the law, then he will dutifully study the law to determine his liability (self-assessment). If he does not find that he is liable for taxes then he will not file a tax return based on his self-assessment of his legal obligations, just like everybody else.

If the Secretary of the Treasury (or her duly appointed minions) disagrees with the findings of the individual then she is accusing them of neglecting a legal obligation for which the law provides penalties for failure to meet that obligation. It is the same as if a doctor were to neglect to help someone in a medical emergency. By choosing to structure her life to be a medical professional she accepted the legal obligations attendant with the choice she made. Specifically a doctor is legally obligated to help in medical emergencies and they can receive civil and criminal penalties for not meeting that obligation. I am not a doctor and if I am involved in a medical emergency then I have a choice about how I respond. Let’s say I choose not to help in a car accident, then later on the police come to me and say that I had an obligation to help in that situation. They are clearly agents of the government and are clearly involved in an investigation. I am, at that point, under suspicion of illegal activity and have the right to remain silent. This is the same situation that occurs when an individual first, investigates the tax laws, finds no liability, and chooses not to file a return, and then second, the IRS issues a notice disagreeing with the individual’s determinations.

If the police find evidence that I am a medical professional, like a doctorate degree from a medical school or even Professional level Red Cross Certification, then they will have proven their case. Then, I would be rightfully found guilty of negligence in the medical emergency in which I failed to help.

Therefore, in the case of the non-filer, if the Secretary of the Treasury and her minions can clearly prove that the an individual is made liable for income taxes then they can prove that the “shall” in section 6012 must be given a mandatory interpretation and the individual will be guilty of failure to file a required tax return.

The Third statement of the argument is blatantly unrealistic. It is obvious that in order to collect taxes that are evaded illegally, without having to resort to costly legal battles and criminal charges in every case, the assessment process must be imposed by the appropriate authorities when liability is clearly established by law. Our entire tax system is based on self-assessment but we have two different kinds of compliance, voluntary and mandatory. Mandatory compliance is the rule where liability is clearly and unequivocally stated in the law. As the IRS says in their version of the truth “Section 6201 of the Code states that the Secretary of the Treasury is required to make assessments 'of all taxes imposed by the title [Title 26].’” And remember:

"The term voluntary compliance means that each of us is responsible for filing a tax return when required and for determining and paying the correct amount of tax."

IRS Publication #2105 (Rev. 10-97)

I don’t know about you, but, the use of the terms voluntary and required in this sentence seems like an oxymoron. If the Secretary of the Treasury is required to make the assessment and then has the power to enforce the collection of that assessment by the use of force, in the form of criminal and civil penalties, then it is a far cry from voluntary in my mind. Their sloppy use of language is irrelevant because the truth is that if you are not required to file a return, then your compliance with their requirements are truly voluntary and you are then liable for the manner in which you meet those requirements. Which also means that if you are not required to file a return and you choose not to file a tax return then the Secretary of the Treasury is not empowered to make an assessment and is not empowered to collect anything. If the Secretary of the Treasury does act to assess or collect taxes against one who is not liable then she runs the risk of possibly violating Title 18 of the United States Code Sections 241 “Conspiracy against rights,” and/or 242 “Deprivation of rights under color of law.”


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# posted by No Liability @ 5:45 PM 1 comments
 

Choosing Your Strategy

Post 9 of 11

If you are convinced that my arguments are substantially sound then you have to ask, “What now?” The question is best answered by comparing where you are with where you want to be. Heavy investment and substantial assets require a more cautious approach than wishes for riches.

The most important issue in deciding what actions to take in choosing your relationship with the government is to know yourself. The food for thought I shared earlier is just the beginning. As I said before, if you believe you are going to burn in hell for not filing a return, then all the legal arguments in the world are not going to help your peace of mind.

Let's think about the possibilities for the future. Is one path any safer than another?

Are they capable of arbitrarily or randomly finding fault with obedience (filing)? Yes, they have several ways of doing this. You can be randomly chosen to defend every single line of your tax return so they can gather statistical data. They could decide to take a closer look at people in your field of work and audit you in order to inspire stricter compliance in your field. They may find a simple typo and decide to audit your returns for the past three years. Even if they don't audit you they may simply apply penalties and/or fees which you would then have to take time to handle with no assurance of success. If you are really lucky you may have the option to go to their courts where they presume your guilt and you must prove your innocence (the recent IRS investigation by Congress has brought about promises to change this but I’ll believe it when I see it.) All of which is at your expense and you would have a snowflakes chance in hell of getting them to pay any of your expenses.

The mission of the IRS is first and foremost to inspire compliance. Their strategies, therefore, serve that goal before they serve the goal of collecting money. That means that no matter what your “income” level you have no better or worse chance of having your veracity doubted by the IRS.

The vast majority of filers have no problems with the IRS.

On the positive side of filing you are fitting into the normal ways of the vast majority of people in business. This is an important consideration since anyone who has substantial assets or financial affairs has to be able to do business in order to maintain and/ or improve their financial position.

On the flip side, if you choose not to file, can they arbitrarily or randomly interfere with your life? Yes, and in predictable ways. As a non-filer, they will notify you when they finally notice you have not filed. The computer will spit out form CP-516 and you will have your first opportunity to confront them with your clear and thoroughly considered position regarding the obligation to file an income tax return.

As soon as you receive any notice, start writing to them asking questions and clearly stating your position. That’s the essence of the strategy I advocate. Politely ask questions about their position and clearly state your position. The sooner you clarify the exact issue of dispute, the sooner the disagreement will be resolved. Maintain an open attitude about the correctness of your position, in other words, state your openness to being proven wrong (and, ideally, state exactly how they can do that). However, do not accept anything less than direct and specific answers to the questions you ask. When asking questions be specific enough that a direct answer is simple and proves one way or another the correctness of your position or disproves the correctness of their position. The long term goal is that when your correspondence is introduced as evidence your position is clear and simple and their ability to disprove it is equally simple and clear. Thus, when they fail to answer your questions they are going to look foolish. It is unlikely that any jury (insist on a jury) would decide in favor of foolish and uncooperative agents of the government against a well-meaning and clearly intelligent citizen.

You do not want to invite escalation of their efforts to inconvenience you. They are most likely to do that if you use the language and tactics of “protesters” and the anti-government factions that the IRS fears. Understand that they are operating in the context of legal, not moral nor political obligations. That means they are most likely to listen to legal arguments (that may happen to have moral/political positions attached) than they are to purely moral/political arguments or moral/political arguments (that happen to have legal positions attached).

I reiterate that you must choose your strategy first and foremost by your personal beliefs, regardless of how the IRS is likely to perceive your actions. You will need to be crystal clear of what your arguments are and stand by them unwaveringly, whether they are moral, legal, practical, or political. Even if you chose a purely moral stance (which the IRS is always quick to dismiss) if you stick by your principles then you will be better off than if you are wishy-washy about what you mean to say and throw in legalistic arguments that you do not believe.

The fact is that no matter what course you choose the IRS might choose to disagree and throw their powerful resources at disrupting your course. A substantial challenge to your course may require you to call on all the resources you can muster, financial, spiritual, emotional, political, and social. The clearer you are from the beginning, the better able you will be to take control of the situation and focus the process on the issues you believe in. Even if you lose, the conflict will be resolved quickly if the issues are clearly set out from the beginning.

If they do decide you are worth pursuing then you must also rely on the financial privacy structures you have put in place to protect your assets and earnings. The issues and solutions for achieving financial privacy are beyond the scope of this book and are more important for those with assets worth protecting.

No matter what course you choose the possibility of the IRS doubting your choice exists. The one thing I believe nearly everyone agrees upon is that the best strategy is to respond to the IRS promptly. It is a foundation of all societies that good faith is required to resolve conflicts. If you make good faith efforts to resolve your conflicts, then you are generally going to be treated better. Ignoring people gives them ample opportunity to make up their own version of why you are not responding. In the case of the IRS you run the risk that they will decide you are “evading” or “protesting” and they might use that label as justification for invoking their most viscous weapons.

IRS agents are smart enough to know that an intelligent, well-meaning citizen who asks simple, clear questions in a courteous and respectful way is likely to find favor with judges and juries. Even if you are right, if you do not practice courtesy and respect they have the power to break their own rules. A case to consider in this regard is Irwin Schiff. He has written several books on the topic of income taxes. He also went to jail and had other penalties applied for his contempt of the system. His mistake was, in my opinion, that he simply could not loosen up enough on his righteousness long enough to show respect for the people who work in the system. If you brought me into your home and then I started ranting and raving about how badly you kept it, you would kick me out, and rightly so. In this case the system does not kick you out, it sucks you in, right into jail. After reading his books which included excerpted transcripts of the proceedings that landed him in jail, I decided that if I were the judge listening to Mr. Schiff criticize everything I do, I would probably have thrown him in jail, too.

For non-filers it is important to show good faith. The key is to be clear about exactly what you believe in, and stick to it respectfully and with determination. My personal beliefs involve moral, legal, and practical issues and I will roll them out judiciously according to what will be best to avoid or resolve a conflict. If you have a purely moral stance, then you would be wise to stick to what you know and weigh the moral issues and tactics so that you can maintain your integrity throughout the process. Whatever issues you feel are vital you can find a community of like-minded individuals and they can help you understand how the system typically responds to the actions you have in mind.

Besides clarifying your personal beliefs and defining the issues you are willing to confront, the next step is finding a community of people who have experience with confronting that issue or one very similar. The most valuable resource you can invest in is the support of a community of like-minded people.


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# posted by No Liability @ 5:43 PM 0 comments
 

How is this possible?

Post 10 of 11

One important question remains: if the ideas presented in this blog are correct, then how is it possible that Congress did not include a liability statement? And what stops them from putting one in once they catch on?

Consider the 16th Amendment

U.S. Constitution Amendment XVI.

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.

Sounds O.K., but, what did they mean by “income” and “from whatever source derived”? First consider “income.” Generally it is understood to mean all money that comes into your possession, but that is not what was originally intended. What is now commonly referred to as “profit” is what they meant by “income.” Here are some relevant court decisions which shed light on what was really meant by the term “income” in the sixteenth amendment:

Referring to a 1913 income tax statute (the same year the 16th amendment was ratified):"It taxes only income “derived” from many different specified sources; one does not “derive income” by rendering services and charging for them."

Edwards v. Keith, Second Circuit Court of Appeals, 231 F. 110 (1916)

"I do not think that “income,” as used in the statute, should be given a meaning so as to include everything that comes in."

So. Pacific Co. v. Lowe, C.I.R., District Court, S.D. N.Y., 238 F. 847 (1917), reversed on other grounds, 247 US 330 (1917)

"Certainly the term 'income' has no broader meaning in the 1913 Act than in that of 1909, and for the present purpose we assume there is no difference in its meaning as used in the two acts. This being so, we are bound to consider accumulations that accrued to a corporation prior to January 1, 1913, as being capital, not income, for the purposes of the act."

So. Pacific Co. v. Lowe, C.I.R., U.S. Supreme Court, 247 US 330 (1917)

"...it becomes essential to distinguish between what is and what is not ‘income,’ as the term is there used [in the 16th Amendment]; and to apply the distinction, as cases arise, ... Congress cannot by any definition it may adopt [in the Internal Revenue Code, for instance] conclude the matter, since it cannot by legislation alter the Constitution, from which alone it derives its power to legislate, and within whose limitations alone that power can be lawfully exercised.

"After examining dictionaries in common use (...) we find little to add to the succinct definition adopted in two cases arising under the Corporate Tax Act of 1909 (...)- ‘Income may be defined as the gain derived from capital, from labor, o from both combined,” provided it be understood to include profit gained through a sale or conversion of capital assets."

Eisner v. Macomber, U.S. Supreme Court, 252 US 189 (1919)

(Notice that there is an inherent contradiction between the above statement that Congress cannot define the word “income,” the item on which the tax is imposed, and the principle of clear and unequivocal language established earlier in Step One: Understanding tax laws, in general. It would appear that the voluntary nature of the tax is probably a necessary subterfuge to avoid the true requirements of a mandatory and honestly enforced excise tax.)

"...there would seem to be no room to doubt that the word must be given the same meaning in all of the Income Tax Acts of Congress that was given to it in the Corporation Tax Act and that what that meaning is has now become definitely settled by decisions of this court."

Merchants L. & T. Co. v. Smietanka, U.S. Supreme Court, 255 US 509 (1920)

"The individual unlike the corporation, cannot be taxed for the mere privilege of existing. The corporation is an artificial entity, which owes its existence and charter powers to the state.

... but the individual’s rights to live and own property are natural rights for the enjoyment of which an excise cannot be imposed."

Redfield v. Fisher, Supreme Court of Oregon, 292 P. 813 (1930)

"Reasonable compensation for labor or services rendered is not profit."

Lauderdale Cemetery Association v. Matthews, Supreme Court of Pennsylvania, 47 A.2d. 277 (1946)

"There is a clear distinction between ‘profit’ and ‘wages’ or compensation for labor. ‘Compensation for labor’ can not be regarded as a profit within the meaning of the law. The word ‘profit,’ as ordinarily used, means the gain made upon any business or investment- a different thing altogether from the mere compensation for labor."

Oliver v. Halstead, Virginia Supreme Court, 86 SF 2d 858 (1955)

"Whatever may constitute income, therefore must have the essential feature of gain to the recipient. This was true when the sixteenth amendment became effective, it was true at the time of the decision in Eisner v. Macomber, supra, it was true under section 22(a) of the Internal Revenue Code of 1938, and it is likewise true under section 61(a) of the Internal Revenue Code of 1954. If there is not gain there is not income.

"Congress has taxed income and not compensation."

Conner v. U.S., U.S. District Court S.D. Texas, 303 F.Supp. 1187 (1969)

"The general term ‘income’ is not defined in the Internal Revenue Code."

United States v. Ballard, Eighth Circuit Court of Appeals, 535 F.2d. 400 (1976)

Remember what Harvard University Legal Scholar Roscoe Pound and Huck Finn had to say about the legal use of language.

In order to understand what Congress was trying to accomplish with the sixteenth amendment and the income tax, generally, first, refer back to the definition of an excise tax.

"Excises are ‘taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.’"

Flint v. Stone Tracy Co., U.S. Supreme Court, 220 US 107 (1910)

The first two quotes above, Edwards v. Keith and So. Pacific Co. v. Lowe, about the meaning of “income” give us a clue about what Congress may have been aiming for. It seems that income in the original conception does not refer to a corporate privilege since corporations are clearly not the only ones being taxed, however, I will discuss this possibility later. It is definitely not a license to pursue an occupation. So, therefore, it must in some way relate to the manufacture, sale, or consumption of commodities. The manufacture is out of the question since the government would not tax itself for printing money, unless the term manufacture is given a broader meaning which encompasses the generation of money from purely financial means, such as interest or dividends, (also known as usury.) It is easier to think about interest and dividends as the sale of money and I believe that is probably what the laws were aiming towards. Consider the context in which the sixteenth amendment arose:

"Enormous wealth had been accumulated by the Rockefellers, the Vanderbilts, the Astors, railroad tycoons, and “robber barons,” as the superrich were sometimes called. They were an extremely unpopular and despised minority whose great wealth gave them aristocratic status and power. It was believed that heavy taxes on this wealth were necessary for the health of the country.

For Good and Evil, The Impact of Taxes on the Course of Civilization, Charles Adams

It is the rich who routinely invest their money for which they receive “income” which is not connected to their labor or services. They have “derived income” by selling money for more money.

The phrase “derived from” is important here. Consider how this phrasing might apply to another excise tax, beer, for instance. If Congress were to use this phrasing in taxing beer they would say, “There is hereby imposed a tax on beer from whatever source derived.” That is not hard to figure out, right? When the brewer gathers together his hops, barley, and whatever else, then puts them together, out comes beer, a known and taxable item and the government is clearly making sure it can tax beer without reference to the ingredients/ sources from which the beer was derived. Now consider what would happen if the government wanted to tax beer in the same way that they are currently taxing income. They would say that since beer is derived from hops and barley, hops and barley are therefore beer and must be taxed accordingly. Thus you pay the beer tax on your hops and barley when you receive them and then they will collect the beer tax again after it is brewed into beer. That is how the current income tax system works under the modern understanding of income as every penny that comes into your possession. All the money you are given in compensation for you labor and services is “income.”

The logic was extended in this way when the Supreme Court abandoned what they called the “gain test” for income. The principle was abandoned because the government wanted the pickax known as “wages.” The system was growing in several important ways. First was the beginning of withholding from wages as part of the “Victory tax” in World War II, which was a truly voluntary withholding scheme to encourage people to support the war debt. In the economic boom after the war and the patriotic fervor that accompanied it, the government simply ignored the expiration of the “Victory Tax” and incorporated it into the income tax. Then as the country experienced the slowing of the economic boom and other negative economic pressures in the 1960’s lawmakers were motivated to better secure the success of taxation. Thus the gain test was abandoned in order to give the government better access to the corporate excesses which had replaced the “robber baron” excesses. They probably did not care as much about principle as Tom Sawyer, but they got what they wanted in any case.

Now, if Congress had originally intended to tax wages and all the money that is received they would have said that they had the power to “lay and collect taxes on all money received from whatever source.” They, in fact, were not intending to tax all money and were trying to distinguish money earned as the fruit of one’s labor from money received through purely non-labor means, loans, investments, and the like. The current application seems to be aimed at including consumption of money as though it were a consumable item. You pay taxes for having it pass though your possession. It is clear, in any case, that the current application of the income tax laws are far beyond the intentions of the authors of the sixteenth amendment.

Addressing Miscellaneous Concerns

Is the IRS definition of “gross income” sufficient to define “income,” as some may claim? The flawed logic is the same as that used in a Natalie Wood joke. (For those who do not remember or do not know Natalie Wood was a famous actress who drown.) The joke goes, “What kind of wood does not float? Natalie Wood” The defenders of the income tax have relied on the same logic by asking, “What kind of income do you pay taxes on? Gross income.” The flaw in the logic is evident when you consider how that kind of definition would lead to absurdity in a real context.

We are going to build a house together. I’m not very experienced at building and so I ask you what material we should use to frame the house and you answer, “Natalie Wood.” In actual practice I (and I believe most people) would assume you were answering the question with a sense of sick humor but really just meant “wood.” Unfortunately the tax game is a legal dialogue with significant financial repercussions. Therefore, assuming that the IRS is empowered to define income by their definition of gross income is equivalent to assuming that we are going to exhume Natalie Woods dead body to build a house. Remember that Congress cannot define income and the IRS as a minion of Congress cannot have more power to create law than Congress.

Now let’s consider the possibility that the income tax is intended to apply to corporate privileges. The idea has more relevance today than it did in the time of the sixteenth amendment because of the replacement of the “Robber Barons” with the Multinational Mega-Corporations. The government is not totally ignorant and has responded to the restructuring of the economic powers with adjustments in the laws it creates. Unfortunately this restructuring to keep up with the rich may have fried smaller fish. If the tax is a tax on corporate privilege, then how can individuals be liable for the tax?

The issue here is more a question of form rather than substance, what legal forms of verification do you have that you are an individual and not a corporation? Supposedly your birth certificate would establish your identity as an individual human being/ citizen. However if you remember what the relationship is between corporations and governments,

The individual unlike the corporation, cannot be taxed for the mere privilege of existing. The corporation is an artificial entity, which owes its existence and charter to the state.

Redfield v. Fisher, Supreme Court of Oregon, 292 P. 813 (1930)

Corporations are legally property of the state because they were created by the state. It is an age-old doctrine of law that the creator is supreme over its creation. Look carefully at your birth certificate and see if there is a box or line that asks for something referring to corporate limits or within the corporate city limits. The argument goes that there is a distinction between the geographic limits and the legal limits. A child born on the soil of a foreign nation but within the U.S. Embassy is within the legal limits of the U.S. even though it is within the geographic limits of another country. If you were born within the corporate city limits then you may be presumed to be born a subject of that corporate entity, and by extension subject to the entities that created that entity, i.e. the state and/or federal governments. Thus you are supposed to become a legal “person” or “individual.” This is the issue that has prompted many “patriots” to file legal papers to rescind their birth certificates and other government documents. They contend that the distinction between inside and outside corporate limits is crucial and that they must establish that they have were born, reside, domicile, live and marry in a particular legal context, in this case outside of the jurisdiction of any “corporate” entity. In particular they insist on the distinction between corporate government and non-corporate government entities. The distinction being that one type of government rules based on having slaves, referred to as “persons” or “individuals,” and the non-corporate republics rule based on having “Citizens.” These languaging arguments can be quite convincing because evidence is easily accumulated to show how consistently the current State and Federal governments use terms in ways that apparently support the distinctions drawn by the advocates of this interpretation of how the system works. But in practical terms they are responding to their own fantasies about evil government conspiracies.

Has the IRS altered the law to suit their mission?

Yes and no. Yes, in that they have been very successful at shaping public perceptions. Yes, in that they mostly get away with operating the way they want most of the time. However, since we have seen that the intentions of the original laws that created the income tax have been extended greatly, it begs the question of who really has the power to extend the law. The IRS would appear to have been given the power to extend their reach beyond the intention of the original law. However, this issue is addressed in the following Supreme Court decision and repeated in a subsequent Eighth Circuit Court decision.

"The power of an administrative officer or board to administer a federal statute and to prescribe rules and regulations to that end is not the power to make law... but the power to adopt regulations to carry into effect the will of Congress as expressed by the statute. A regulation which does not do this, but operates to create a rule out of harmony with the statute, is a mere nullity."

Manhattan General Equipment Co. v. Commissioner, U.S. Supreme Court, 297 US 129

"It is true that the power to adopt regulations is not the power to make law, but is the power to carry into effect the will of Congress as expressed by statute."

Prescott v. C.I.R., U.S. Eighth Circuit Court of Appeals, 561 F.2d. 1287 (1977)

While these court decisions indicate that the IRS is not supposed to stretch the laws, the practical reality is that they can and do within some broad limitations. Congress is ultimately responsible for having created the income tax system and they are responsible for those broad limitations. The next level of responsibility is with the creators of Congress, but that is another topic.

The truth is that the current state of the tax system is a by-product of the complex interactions of history, politics, economics, and legislative bureaucracy. To speculate, as some have, that the current system is a conspiracy of the upper class or the ruling elite is an over estimation of the control of small groups and an under estimation of the intelligence of the complex institutional and cultural systems which are actively shaping our world today. I do not doubt that the elite upper classes have some degree of control and influence. They undoubtedly act to exercise that influence and control, however, I am also sure that they are subject to a social equivalent of the scientific concept known as the “uncertainty principle.”

The uncertainty principle states that the degree of precision of measurement of the direction and velocity of a particle is inversely related to the degree of precision of measurement of the position of the particle. In other words, if you want to know where it is you cannot know how fast it’s going nor in what direction, and if you want to know how fast it’s going and in which direction it’s traveling you cannot know where it is. For the ruling elite, they may use their power and control to point us, the society, in a particular direction, but they will not know exactly where it started and therefore will not know the outcome, except in general terms of the direction. And conversely, if they find out where we are they lose track of what direction we’re going and how fast, and therefore will not know which direction is most pertinent to addressing the issues they are most concerned about. Of course they are also subject to the fact that we, as a society, are also an extremely dynamic bunch which immediately renders their latest information irrelevant because we will have immediately shifted ourselves unpredictably as we deal with our daily tragedies and triumphs.

The state of the system of tax laws in the United States is such a complex system that my belief is that Congress and the IRS would like to ignore the liability issue as long as possible and only address it when it becomes an unavoidable necessity. If that situation occurs they are most likely in my estimation to deflect the issue and simply pass a law that obscures the issue further. If the country is in a time of relative chaos this would probably work because the courts would simply perform the next set of linguistic and legal gymnastics to quell any threat to the government’s ability to extract money. If the country is not in a time of chaos then there is a possibility that the courts could resist Congress inevitable attempt to legislate around the problem, as they did for many years before the passage of the 16th Amendment. Since our country is never more than a decade from another bout of relative chaos (which would inevitably ensue as the media emphasized the pernicious effects of the government’s inability to collect the income tax with impunity) Congress will eventually have it’s way. That is my vision of the scenario given that the whole system remains in the pattern it has revolved in for the last two hundred years.

Another possibility is that the system will go into the choatic period and not recover. That will mean that the society as a whole will reform itself, in a word, revolutionize. The “collapse” of the United Sates like the former Soviet Union is, in my mind, a possible scenario. My hope is that we will be able to achieve our revolution like the Czechoslovakian people did with the help of people like poet/president Vaclav Havel. The Czechoslovakian “Velvet Revolution” was characterized by a lack of violence. I believe it would be an accident of history if the lack of liability to income taxes set off a revolution. I am sure that a revolution will be inevitable if we each stand in our truth against each of the little white political lies, legal inconsistencies, and policy deceptions that we endure from our government and other institutions.

I fully advocate that we stand in the truth, without blame. It is unnecessary to criticize or complain, and more importantly counterproductive to creating communication and positive changes. When I chose this path originally, I did get angry and had the inclination to find fault, place blame, and seek to punish, however, I have continued to search for understanding and have been rewarded. As my anger and resentment subsided I came to gain clarity and insight. I have returned to the firm conviction that the most powerful position is humbly standing and acting from the center of my truth, in humility. That means practicing the utmost respect for others, especially the IRS, Congress, the “power elite” and any others who might appear to perpetuate the deceptions and untruths I perceive. I advocate that you take from this book first and foremost the attitude of respect for those who are going to challenge your choices and beliefs. Only by practicing respect will you have an opportunity to receive respect and possibly justice for the time, effort and expense you invest in finding and defending your truth.


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