By Jim W. Norman, CPA
Your parents offer you the choice of a switch or paddle.
You “voluntarily” choose switch. Did you have the choice of avoiding the
spanking? Not likely. Such is “voluntary compliance” with the income tax code.
Over the years tax protesters have made many counter
arguments as to what “voluntary” means or whether you do in fact have to file a
tax return. The IRS calls these
“frivolous tax arguments” and puts them into six different categories.
First is the biggie: the voluntary nature of the
Federal income tax system. Some proponents of this argument say that the filing
of a tax return and payment of taxes is voluntary. In a nutshell, “voluntary
compliance” simply means that the IRS will let you determine how much you owe
in taxes, following the law, by completing and filing the appropriate tax
return. That is as opposed to them just sending you a bill for taxes without
your input (which they often do if you don’t comply). This argument has been
all the way to the Supreme Court and most other courts along the way. You must file a tax return when required.
OK then, they argue,
payment of tax is voluntary. Also well litigated, the requirement to pay taxes
is not voluntary and is clearly set forth in the Internal Revenue Code, which
imposes a tax on the taxable income of individuals, estates, and trust, as well
as corporations. Other rules of the Code detail the requirement that the
taxpayer submit payment with their returns.
You must pay your taxes or face late payment penalties.
The second category relates to arguments about
income. Wages, tips and other
compensation received for personal services are not income protesters
argue. For Federal income tax purposes,
“Gross Income” is defined by Code section 61 and means all income from whatever
source derived. It specifically includes compensation for services. If the Code doesn’t exempt an item, it is
considered income.
Next in the income argument is that only
foreign-source income is taxable. This argument says Federal income taxes are
really excise taxes imposed only on nonresident aliens and foreign corporations
for the privilege of receiving income from US sources. That assertion is generally believed to be
caused by a misreading of various Code sections and their regulations. The law is still Code section 61, all income
from all sources not specifically excluded.
Falling into category three are various arguments
about who is a citizen of the
The fourth category contains constitutional
arguments such as the contention that the Federal income taxes constitute a
taking of property without due process of law, violating the Fifth
Amendment. This one did make it to the
Supreme Court, but no, this won’t work either.
“But Judge,” you might say, “if I file that return it violates my Fifth
Amendment right against self-incrimination.” The courts have rejected that
argument saying, “The failure to comply with the filing and reporting
requirements of the Federal tax laws will not be excused based on blanket
assertions of the constitutional privilege against compelled self-incrimination
under the Fifth Amendment.”
Not having any luck with the Fifth Amendment,
protesters turn to the Thirteenth Amendment and claim that income tax
compliance is “involuntary servitude.” The Court of Appeals rejected this
argument, saying, “if the requirements of the tax laws
were to be classed as servitude, they would not be the kind of involuntary
servitude referred to in the Thirteenth Amendment.”
Well then how about the Sixteenth Amendment that
provided for the income tax in 1913? Was it legally ratified? Does it really
authorize a direct Federal income tax on US citizens? Succinctly, yes and
yes. This argument continues to survive
over time because protesters mistakenly believe that the courts have refused to
address this issue. Not true. The Supreme Court addressed both issues and
upheld the constitutionality of the income tax laws in 1916.
Category five is where patently fictional claims
come in. All examples of unfounded tax
folklore, these arguments go like this: the IRS is not an agency of the United
States; taxpayers are not required to file a return because instructions do not
display the OMB number required by the Paperwork Reduction Act; African
Americans can claim a special tax credit as reparations for slavery and other
oppressive treatment; and taxpayers are entitled to a refund of the Social
Security taxes paid over a lifetime.
None are true; none work.
And finally, the last category involves “untaxing” packages or trusts. Advocates of this idea believe that an “untaxing” package or trust provides a way of legally and
permanently “untaxing” oneself so that a person would
no longer be required to file tax returns and pay taxes. Promoters who sell such tax evasion plans and
supposedly teach individuals how to remove themselves from the tax system rely
on many of the above-described frivolous arguments. Promoters of these types of schemes as well
as willful taxpayers have been subjected to criminal penalties for their
actions. There is no such thing as an “untaxing” process.
The Internal Revenue Code provides for a $500
penalty against any individual who files a frivolous income tax return. The Code also allows courts to impose a
penalty of up to $25,000 when they come to any of three conclusions: a taxpayer instituted a proceeding primarily
for delay, a position is frivolous or groundless, or a taxpayer unreasonably failed
to pursue administrative remedies. Individuals that run these unlawful plans to
the extreme may face other civil and criminal penalties.
So be wise, file your return when required. The
switch or paddle is up to you.
Jim W. Norman, CPA is a principal with Norman, Johnson & Co., PA, a
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