TAX REMEDIES - Patriot Network

TAX REMEDIES - Patriot Network

Presented by THE PATRIOT NETWORK Founded by DR. ROBERT B. CLARKSON Circa 1980 The Truth About Frivolous Tax Arguments Frivolous Tax Arguments in General The Voluntary Nature of the Federal Income Tax System Contention: The filing of a

tax return is voluntary Some taxpayers assert that they are not required to file federal tax returns because the filing of a tax return is voluntary. Proponents point to the fact that the IRS itself tells taxpayers in the Form 1040 instruction book that the tax system is voluntary. Contention: The filing of a tax return is voluntary Additionally,

the Supreme Courts opinion in Flora v. United States, is often quoted for the proposition that "[o]ur system of taxation is based upon voluntary assessment and payment, not upon distraint." Contention: The filing of a tax return is voluntary The Law: The word voluntary, as used in Flora and in IRS publications, refers to our system of allowing taxpayers initially to determine the correct amount of tax and complete the appropriate returns, rather

than have the government determine tax for them from the outset. The requirement to file an income tax return is not voluntary and is clearly set forth in sections 6011(a), 6012(a), and 6072(a). Contention: The filing of a tax return is voluntary Any taxpayer who has received more than a statutorily determined amount of gross income is obligated to file a return. Failure to file a tax return could subject the non-complying individual to criminal penalties, including fines and imprisonment, as well as civil penalties. In United

States v. Tedder, the court clearly states, although Treasury regulations establish voluntary compliance as the general method of income tax collection, Congress gave the Secretary of the Treasury the power to enforce the income tax laws through involuntary collection . . . . The IRS efforts to obtain Contention: The filing of a tax return is voluntary In August 2005, the Justice Department announced that Royal Lamarr Hardy was sentenced for, among other things, selling a tax evasion scheme called the Reliance

Defense that incorrectly asserted the income tax laws were voluntary (i.e., the laws imposed no legal obligation to pay tax or file a return). Hardy was also ordered to pay costs of prosecution in the amount of $59,267.88, and restitution to the IRS for $197,555. Contention: The filing of a tax return is voluntary In August 2007, a U.S. District Court permanently barred Robert Schulz and his organizations, We the People Congress and We the People Foundation, from

promoting a tax scheme that helped employers and employees improperly stop tax withholding from wages on the false premise that federal income taxation is voluntary. Contention: The filing of a tax return is voluntary The court concluded that the First Amendment did not protect the two organizations that operate the website, or their founder, because the site incited criminal conduct. The court also ordered that the web site that sold the materials stating that individuals can legally stop paying taxes be shut.

The result in this case was affirmed on appeal and certiorari was denied. United States v. Schulz 2. Contention: Payment of tax is voluntary In a similar vein, some argue that they are not required to pay federal taxes because the payment of federal taxes is voluntary. Proponents of this position argue that our system of taxation is based upon voluntary assessment and payment. They frequently claim that there is no provision

in the Internal Revenue Code or any other federal statute that requires them to pay or makes them liable for income taxes, and they demand that the IRS show them 2. Contention: Payment of tax is voluntary The stance that is taken is that until the IRS can prove to these taxpayers satisfaction, which is effectively impossible because they never will be satisfied, the existence and applicability of the income tax laws, they will not report or pay income taxes. These taxpayers reflexively dismiss any attempt by the IRS to identify the laws,

thereby continuing the cycle. The IRS has issued a ruling, discussing this frivolous 2. Contention: Payment of tax is voluntary The Law: The requirement to pay taxes is not voluntary and is clearly set forth in section 1 of the Internal Revenue Code, which imposes a tax on the taxable income of individuals, estates, and trusts as determined by the tables set forth in that section. (Section 11 imposes a tax on the

taxable income of corporations.) 2. Contention: Payment of tax is voluntary Furthermore, the obligation to pay tax is described in section 6151, which requires taxpayers to submit payment with their tax returns. Failure to pay taxes could subject the noncomplying individual to criminal penalties, including fines and imprisonment, as well as civil penalties.

2. Contention: Payment of tax is voluntary In discussing section 6151, the Eighth Circuit Court of Appeals stated that when a tax return is required to be filed, the person so required shall pay such taxes to the internal revenue officer with whom the return is filed at the fixed time and place. 2. Contention: Payment of tax is voluntary In

United States v. Kuglin, Vernice B. Kuglin faced criminal charges for falsifying Forms W-4 and failing to pay taxes on $920,000 of income between 1996 and 2001, but was acquitted by a federal jury. Kuglin argued that she attempted to determine whether the income was taxable but the Service did not respond to her letters. Government officials issued press releases making it clear that the outcome in Kuglin should be treated as an aberration and noting that persons acquitted of criminal tax violations are not relieved of their obligation to pay taxes due. 2. Contention: Payment of tax is voluntary

The defendant in United States v. Brunet, argued he could not find any information that would lead him to conclude the Internal Revenue Code made him liable to file income tax returns or pay taxes. In stark contrast to Kuglin, the jury returned guilty verdicts against Brunet on four counts of tax evasion. 2. Contention: Payment of tax is voluntary

There have been no civil cases where the Services lack of response to a taxpayers inquiry has relieved the taxpayer of the duty to pay tax due under the law. Courts have in rare instances waived civil penalties because they have found that a taxpayer relied on a Service misstatement or wrongful misleading silence with respect to a factual matter. Such an estoppel argument does not, however, apply to a legal matter such as whether there is legal authority to collect taxes. Kuglins case, discussed above, did not prove to be the exception. Despite her acquittal of criminal charges, on September 12, 2004, Kuglin entered a settlement with the IRS in the Tax Court in which

she agreed to pay more than half a million dollars in back taxes and penalties. 2. Contention: Payment of tax is voluntary In August 2004, an appellate court affirmed a federal district court preliminary injunction barring Irwin Schiff, Cynthia Neun, and Lawrence N. Cohen from selling a tax scheme that fraudulently claimed that payment of federal income tax is voluntary. Also, in October 2005, the trio was convicted by a Las Vegas jury for various criminal charges relating to the federal income tax laws.

2. Contention: Payment of tax is voluntary In June 2009, Lawrence Cohen, an associate of Irwin Schiff, pled guilty to aiding and assisting in the preparation of a false Form 1040. Cohen also agreed to pay restitution for the taxes owed. 3. Contention: Taxpayers can reduce their federal income tax liability by filing a zero return.

Some taxpayers are attempting to reduce their federal income tax liability by filing a tax return that reports no income and no tax liability (a zero return) even though they have taxable income. Many of these taxpayers also request a refund of any taxes withheld by an employer. These individuals typically attach to the zero return a Form W-2, or another information return that reports income and income tax withholding, and rely on one or more of the frivolous arguments discussed throughout this outline to support their position. 3. Contention: Taxpayers can reduce their

federal income tax liability by filing a zero return. The Law: There is no authority that permits a taxpayer that has taxable income to avoid income tax by filing a zero return. Section 61 provides that gross income includes all income from whatever source derived, including compensation for services. Courts have repeatedly penalized taxpayers for making the frivolous argument that the filing of a zero return can allow a taxpayer to avoid income tax liability or permit a refund of tax withheld by an employer.

3. Contention: Taxpayers can reduce their federal income tax liability by filing a zero return. Courts have also imposed the frivolous return and failure to file penalties because such forms do not evidence an honest and reasonable attempt to satisfy the tax laws or contain sufficient data to calculate the tax liability. The IRS issued a ruling warning taxpayers of the consequences of making this argument. Furthermore, the inclusion of the phrase nunc pro tunc, or other legal phrase, does not have any legal effect and does not serve to validate

a zero return. 3. Contention: Taxpayers can reduce their federal income tax liability by filing a zero return. In December 2005, a federal district court in Arizona permanently barred Beverly J. Hill and Darrell J. Hill (individually and doing business as Superior Claims Management) from, among other things, preparing or filing federal tax returns for any person or entity other than themselves. The court found that the couple filed zero returns on behalf of their

clients based on various frivolous tax arguments, thus interfering with the administration and enforcement of the 3. Contention: Taxpayers can reduce their federal income tax liability by filing a zero return. In April 2006, a federal district court in Michigan permanently barred Charles Conces from promoting several fraudulent tax schemes, including one in which he filed zero returns on behalf of his clients on the faulty premise that income is not taxable

3. Contention: Taxpayers can reduce their federal income tax liability by filing a zero return. In February 2008, a federal court in Dallas permanently barred Phillip M. Ballard from preparing federal income tax returns for anyone other than himself. The court found that Ballard, whose business is called Asset & IRS Shield, Inc., prepared federal income tax returns for customers that falsely showed nothing but zeroes on most, if not all, lines.

4. Contention: The IRS must prepare federal tax returns for a person who fails to file. Proponents of this argument contend that section 6020(b) obligates the IRS to prepare and sign under penalties of perjury a federal tax return for a person who does not file a return. Thus, those who subscribe to this contention claim that they are not required to file a return for themselves. 4. Contention: The IRS must prepare federal tax returns for a

person who fails to file. The Law: Section 6020(b) merely provides the IRS with a mechanism for determining the tax liability of a taxpayer who has failed to file a return. Section 6020(b) does not require the IRS to prepare or sign under penalties of perjury tax returns for persons who do not file and it does not excuse the taxpayer from civil penalties or criminal liability for failure to file. 5. Contention: Compliance with an administrative summons issued by the IRS is voluntary.

Some summoned parties may assert that they are not required to respond to or comply with an administrative summons. Proponents of this position argue that a summons thus can be ignored. The Second Circuits opinion in Schulz v. IRS, (Schulz II) is often cited to support this proposition. 5. Contention: Compliance with an administrative summons issued by the IRS is voluntary.

The Law: A summons is an administrative device with which the IRS can summon persons to appear, testify, and produce documents. The IRS is statutorily authorized to inquire about any person who may be liable to pay any internal revenue tax, and to summons a witness to testify or to produce books, papers, records, or other data that may be relevant or material to an investigation. A section of the Internal Revenue Code grant jurisdiction to district courts to enforce a summons, and section 7604(b) governs the general enforcement of summonses by the IRS. 5. Contention: Compliance with an administrative

summons issued by the IRS is voluntary. Section 7604(b) allows courts to issue attachments, consistent with the law of contempt, to ensure attendance at an enforcement hearing "[i]f the taxpayer has contumaciously refused to comply with the administrative summons and the [IRS] fears he may flee the jurisdiction. A court noted that section 7604(b) actions are in the nature of contempt proceedings against persons who wholly made default or contumaciously refused to comply, with an administrative summons issued by the IRS. Under section 7604(b), the courts may also impose contempt sanctions for disobedience of an IRS

summons. 5. Contention: Compliance with an administrative summons issued by the IRS is voluntary. Failure to comply with an IRS administrative summons also could subject the non-complying individual to criminal penalties, including fines and imprisonment. While the Second Circuit held in Schulz II that, for due process reasons, the government must first seek judicial review and enforcement of the underlying summons and to provide an intervening opportunity to comply with a court order of enforcement prior to

seeking sanctions for noncompliance, the courts opinion did not foreclose the availability of prosecution under section 7210. B. The Meaning of Income: Taxable Income and Gross Income 1. Contention: Wages, tips, and other compensation received for personal services are not income. This argument asserts that wages, tips, and other compensation

received for personal services are not income, because there is allegedly no taxable gain when a person exchanges labor for money. Under this theory, wages are not taxable income because people have basis in their labor equal to the fair market value of the wages they 1. Contention: Wages, tips, and other compensation received for personal services are not income. A variation of this argument

misconstrues section 1341, which deals with computations of tax where a taxpayer restores a substantial amount held under claim of right, to somehow allow a deduction claim for personal services rendered. 1. Contention: Wages, tips, and other compensation received for personal services are not income. Another similar argument asserts that wages are not subject to taxation where a person has obtained funds in exchange for their

time. Under this theory, wages are not taxable because the Code does not specifically tax these so-called time reimbursement transactions. Some take a different approach and argue that the Sixteenth Amendment to the United States Constitution did not authorize a tax on wages and salaries, but only on gain or profit. 1. Contention: Wages, tips, and other compensation received for personal services are not income. The Law: For federal income tax purposes, gross income means all income from whatever

source derived and includes compensation for services. I.R.C. 61. Any income, from whatever source, is presumed to be income under section 61, unless the taxpayer can establish that it is specifically exempted or excluded. In Reese v. United States, the court stated, an abiding principle of federal tax law is that, absent an enumerated exception, gross income means all income from whatever source derived. 1. Contention: Wages, tips, and other compensation received for personal services are not income. Section 1341 and the cases interpreting it

require taxpayers to return funds previously reported as income before they can claim a deduction under claim of right. To have the right to a deduction, the taxpayer should appear to have an unrestricted right to the income in question. It is a frivolous argument to claim a section 1341 deduction when there has been no repayment by the taxpayer of an amount previously reported as income. 1. Contention: Wages, tips, and other compensation received for personal services are not income. The

Sixteenth Amendment provides that Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration. U.S. Const. amend. XVI. Furthermore, the U.S. Supreme Court upheld the constitutionality of the income tax laws enacted subsequent to ratification of the Sixteenth Amendment in Brushaber v. Union Pacific R.R.. Since that time, the courts have consistently upheld the constitutionality of the federal income tax. 1. Contention: Wages, tips, and other compensation received for personal services are not income.

All compensation for personal services, no matter what the form of payment, must be included in gross income. This includes salary or wages paid in cash, as well as the value of property and other economic benefits received because of services performed, or to be performed in the future. Furthermore, criminal and civil penalties have been imposed against individuals relying upon this frivolous argument. 1. Contention: Wages, tips, and other compensation received for personal services are not income. Taxpayers

who assert the position that wages are not taxable income, or other frivolous positions, may later claim that they were ignorant of or did not purposely disregard the requirements of the tax laws, such as the requirements to report wages and to withhold and pay taxes. Also, a handful of taxpayers who are criminally charged with violations of the internal revenue laws have avoided conviction. 1. Contention: Wages, tips, and other compensation received for personal services are not income. Taxpayers

should not mistake these cases for an indication that frivolous positions that lead to criminal acquittals are legitimate or that the outcome of other cases will protect a taxpayer from sanctions resulting from noncompliance. Furthermore, while a few defendants have prevailed, the vast majority are convicted. Also, even though a taxpayer may be acquitted of criminal charges of noncompliance with Federal tax laws, the Service is still free to pursue any underlying tax liability and is not barred from determining civil penalties. 1. Contention: Wages, tips, and other compensation received for personal services

are not income. In November 2004, a federal district court in Ohio barred Michael A. Allamby from preparing federal tax returns and representing taxpayers before the IRS. Mr. Allamby erroneously interpreted the instructions to certain federal tax forms as requiring individuals to report their wages as income only if they invested the wages to earn income. Also, in May 2005, a federal district court in Louisiana permanently barred Richard A. Fuselier and Richard J. Ortt and their organization, Compensation Consultants, from preparing tax returns and promoting tax schemes, such as the not for profit scheme, which was based on the premise that wages cannot be taxed.

1. Contention: Wages, tips, and other compensation received for personal services are not income. In January 2005, a federal district court in California permanently enjoined Joseph O. Saladino, founder of an organization known as the Freedom and Privacy Committee, from promoting two schemes: the claim of right program and the corporation sole scheme (discussed below in this outline). In November 2009, Saladino and three codefendants were convicted of conspiracy to

defraud the United States by interfering with the IRS ability to accurately assess and calculate income taxes. A fourth codefendant was acquitted and a fifth pled guilty in September. 1. Contention: Wages, tips, and other compensation received for personal services are not income. Also, in January 2005, a federal district court in North Carolina permanently barred Frank D. Perkinson from selling the claim of right program and the corporation sole scheme. In June 2006, Richard M. Blackstock was convicted on thirty-two counts of assisting in

the preparation of fraudulent returns based on his involvement in filing various returns claiming deductions for wages, salaries and other compensation under the frivolous claim of right theory. 1. Contention: Wages, tips, and other compensation received for personal services are not income. In March 2008, a federal judge in Michigan barred Donald A. Gray from preparing federal income tax returns. The court found that Gray had been preparing tax returns for his customers based on the theory that wages are not income.

The court ordered that Gray be barred from counseling others about the preparation of their returns, from holding himself out as a Certified Public Accountant, and from otherwise interfering with the administration and enforcement of the internal revenue laws. 2. Contention: Only foreignsource income is taxable. Some maintain that there is no federal statute imposing a tax on income derived from sources within the United States by citizens or residents of the United States. They argue instead that federal income taxes are excise taxes imposed only on nonresident aliens and foreign

corporations for the privilege of receiving income from sources within the United States. The premise for this argument is a misreading of sections 861, and 911, as well as the regulations under those sections. 2. Contention: Only foreignsource income is taxable. The Law: As stated above, for federal income tax purposes, gross income means all income from whatever source derived and includes compensation for services. I.R.C. 61. Further, Treas. Reg. 1.1-1(b) provides, [i]n general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without

the United States. I.R.C. sections 861 and 911 define the sources of income (U.S. versus non-U.S. source income) for such purposes as the prevention of double taxation of income that is subject to tax by more than one country. These sections neither specify whether income is taxable, nor do they determine or define gross income. These frivolous assertions are clearly contrary to well-established legal precedent. 2. Contention: Only foreignsource income is taxable. In March 2005, a federal district court in Florida barred Gregory T. Mayer from preparing false or fraudulent returns and selling fraudulent tax schemes relying upon, among other things, the

frivolous section 861 argument, which falsely claims that income from sources in the United States is not subject to federal income tax. In August 2005, a federal district court in Florida permanently barred Carel Chad Prater and Richard Cantwell from promoting tax-fraud scams relying on the section 861 argument. 2. Contention: Only foreignsource income is taxable. In May 2005, the Tenth Circuit affirmed the conviction of Ernest G. Ambort for willfully aiding and assisting in the preparation of false income tax returns. The basis of the conviction involved seminars conducted by

Mr. Ambort where he falsely instructed the attendees that they could claim to be nonresident aliens with no domestic source income, regardless of place of birth, so that they were exempt from most federal income taxes. 2. Contention: Only foreignsource income is taxable. In August 2005, a Philadelphia jury convicted Larken Rose on five counts of willful failure to file federal income tax returns based on the frivolous section 861 argument.

3. Contention: Federal Reserve Notes are not income. Some assert that Federal Reserve Notes currently used in the United States are not valid currency and cannot be taxed, because Federal Reserve Notes are not gold or silver and may not be exchanged for gold or silver. This argument misinterprets Article I, Section 10 of the United States Constitution. 3. Contention: Federal Reserve Notes are not income.

The Law: Congress is empowered [t]o coin Money, regulate the value thereof, and of foreign coin, and fix the Standard of weights and measures. U.S. Const. Art. I, 8, cl. 5. Article I, Section 10 of the Constitution prohibits the states from declaring as legal tender anything other than gold or silver, but does not limit Congress power to declare the form of legal tender. In United States v. Rifen, the court affirmed a conviction for willfully failing to file a return, rejecting the argument that Federal Reserve Notes are not subject to taxation. Congress has declared federal reserve notes legal tender . . . and federal reserve notes are taxable dollars. The courts have rejected this argument on numerous occasions.

C. The Meaning of Certain Terms Used in the Internal Revenue Code 1. Contention: Taxpayer is not a citizen of the United States, thus not subject to the federal income tax laws. Some individuals argue that they have rejected citizenship in the United States in favor of state citizenship; therefore, they are relieved of their federal income tax obligations. A variation of this argument is that a person is a free born citizen of a particular state and thus was never a citizen of

the United States. The underlying theme of these arguments is the same: the person is not a United States citizen and is not subject to federal tax laws because only United States citizens are subject to these laws. 1. Contention: Taxpayer is not a citizen of the United States, thus not subject to the federal income tax laws. The Law: The Fourteenth Amendment to the United States Constitution defines the basis for United States citizenship, stating that [a]ll persons born or naturalized in the United States,

and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. The Fourteenth Amendment therefore establishes simultaneous state and federal citizenship. Claims that individuals are not citizens of the United States but are solely citizens of a sovereign state and not subject to federal taxation have been uniformly rejected by the courts. 1. Contention: Taxpayer is not a citizen of the United States, thus not subject to the federal income tax laws. In April 2005, a federal district court

in Georgia permanently barred Jonathan D. Luman from selling his Tax Buster program that was based on the false theory that customers can avoid paying tax by renouncing their Social Security numbers and becoming sovereign citizens. 1. Contention: Taxpayer is not a citizen of the United States, thus not subject to the federal income tax laws. In September 2006, a federal district

court in California permanently barred James L. Tolbert from preparing income tax returns for others, because he promoted a fraudulent tax scheme based on the frivolous theory, among others, that state residents are not liable for federal income tax since they are citizens of the state and not of the 1. Contention: Taxpayer is not a citizen of the United States, thus not subject to the federal income tax laws. In January 2006, Lynn N. Ealy was sentenced in federal district court for

his conviction on three counts of federal income tax evasion and ordered to pay restitution of $84,174 to the IRS. The evidence against Mr. Ealy demonstrated various affirmative acts of evasion, including the fact that he claimed he was not a citizen of the United States and the tax laws were unconstitutional. 1. Contention: Taxpayer is not a citizen of the United States, thus not subject to the federal income tax laws. In September 2006, a California federal district

court barred James L. Tolbert from preparing federal tax returns. Tolbert promoted a tax avoidance scheme representing, among other things, that residents of California or other states are not liable for federal income tax because they are citizens of California (or other state) and not the United States, and that American citizens working in the United States need not file federal income returns because compensation for labor is totally different in meaning and in law from income. 2. Contention: The United States consists only of the District of Columbia, federal territories, and federal enclaves.

Some argue that the United States consists only of the District of Columbia, federal territories (e.g., Puerto Rico, Guam, etc.), and federal enclaves (e.g., American Indian reservations, military bases, etc.) and does not include the sovereign states. According to this argument, if a taxpayer does not live within the United States, as so defined, he is 2. Contention: The United States consists only of the District of Columbia, federal territories, and federal enclaves.

The Law: The Internal Revenue Code imposes a federal income tax upon all United States citizens and residents, not just those who reside in the District of Columbia, federal territories, and federal enclaves. In United States v. Collins, the court cited Brushaber v. Union Pac. R.R., and noted the United States Supreme Court has recognized that the sixteenth amendment authorizes a direct non-apportioned tax upon United States citizens throughout the nation, not just in federal enclaves. This frivolous contention has been uniformly rejected by the courts. 2. Contention: The United States consists

only of the District of Columbia, federal territories, and federal enclaves. In April 2006, a federal district court in California permanently barred Michael Muhammad (a.k.a., Michael Eugene Wall and Michael Muta Ali Muhammad) from preparing federal income tax returns for others, because he promoted a fraudulent tax scheme by preparing returns reporting no income based on the theory that only income earned in the District of Columbia and other federal territories need be reported. 2. Contention: The United States consists

only of the District of Columbia, federal territories, and federal enclaves. In May 2005, a federal district judge sentenced Wayne C. Bentson, as well as requiring Mr. Bentson to pay restitution of over $1.1 million for falsely advising clients, among other things, that the internal revenue laws only applied to individuals residing in the Virgin Islands, Guam and Puerto Rico. 3. Contention: Taxpayer is not a person as

defined by the Internal Revenue Code, thus is not subject to the federal income tax laws. Some maintain that they are not a person as defined by the Internal Revenue Code, and thus not subject to the federal income tax laws. This argument is based on a tortured misreading of the Code. The Law: The Internal Revenue Code clearly defines person and sets forth which persons are subject to federal taxes. Section 7701(a)(14) defines taxpayer as any person subject to any internal revenue tax and section 7701(a)(1) defines person to include an individual, trust, estate, partnership, or corporation. Arguments that an individual is not a person within the meaning of the Internal Revenue Code have been uniformly rejected. A

similar argument with respect to the term individual has also been rejected. 4. Contention: The only employees subject to federal income tax are employees of the federal government. Some argue that the federal government can tax only employees of the federal government; therefore, employees in the private sector are immune from federal income tax liability. This argument is based on a misinterpretation of section 3401, which imposes responsibilities to withhold tax from wages. That section establishes the general rule that wages include all remuneration for services performed by an

employee for his employer. Section 3401(c) goes on to state that the term employee includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof . . . . 4. Contention: The only employees subject to federal income tax are employees of the federal government. The Law: Section 3401(c) defines employee and states that the term includes an officer, employee or elected official of the United States . . . . This language does not address how other employees wages are subject to withholding or taxation. Section

7701(c) states that the use of the word includes shall not be deemed to exclude other things otherwise within the meaning of the term defined. Thus, the word includes as used in the definition of employee is a term of enlargement, not of limitation. It clearly makes federal employees and officials a part of the definition of employee, which generally includes private citizens. 4. Contention: The only employees subject to federal income tax are employees of the federal government. In June 2006, a federal district court

in California permanently barred Christopher M. Hansen (using the business names of the Family Guardian and the Sovereignty Education and Defense Ministry) from promoting a fraudulent tax scheme based on the frivolous theory, among others, that only federal workers are subject to the 4. Contention: The only employees subject to federal income tax are employees of the federal government. In March 2007, a federal court in Michigan

issued a temporary restraining order barring Donald A. Gray from preparing federal income tax returns for others. The court found that the Portage, Michigan, man had been preparing income tax returns for customers based on the frivolous theory that wages are not income for federal tax purposes unless the wage earner works for the government. 4. Contention: The only employees subject to federal income tax are employees of the federal government. In May 2007, a federal court in Michigan

permanently barred Peter and Doreen Hendrickson from filing tax returns and forms on which they falsely report their income as zero. The injunction order also requires the couple to repay more than $20,000 in federal income, Social Security, and Medicare taxes that they had obtained by filing false tax returns with the IRS. The order notes that the couple based their improper conduct on a book Peter Hendrickson wrote called Cracking the Code. The book states that federal tax withholding and income taxes on wages are applicable only for a limited class of people, primarily government employees. D. Constitutional

Amendment Claims 1. Contention: Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment. Some argue that taxpayers may refuse to pay federal income taxes based on their religious or moral beliefs, or objection to the use of taxes to fund certain government programs. These persons mistakenly invoke the First Amendment in support of this frivolous position.

1. Contention: Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment. The Law: The First Amendment to the United States Constitution provides that Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances. The First Amendment, however, does not provide a right to refuse to pay income taxes on religious or moral grounds, or because taxes are used to fund government programs opposed by the taxpayer. Nor does

the First Amendment protect commercial speech or speech that aids or incites taxpayers to unlawfully refuse to pay federal income taxes, including speech that promotes abusive tax avoidance schemes. 2. Contention: Federal income taxes constitute a taking of property without due process of law, violating the Fifth Amendment. Some assert that the collection of federal income taxes constitutes a taking of property without due process of law, in violation of the Fifth Amendment. Thus, any attempt

by the IRS to collect federal income taxes owed by a taxpayer is unconstitutional. 2. Contention: Federal income taxes constitute a taking of property without due process of law, violating the Fifth Amendment. The Law: The Fifth Amendment to the United States Constitution provides that a person shall not be deprived of life, liberty, or property, without due process of law . . . . The U.S. Supreme Court stated in Brushaber v. Union Pacific R.R., that it is . . . well settled that [the Fifth Amendment] is not a limitation upon the taxing power conferred upon Congress by the Constitution; in other words, that the Constitution does not conflict with itself by

conferring upon the one hand a taxing power, and taking the same power away on the other by limitations of the due process clause. Further, the Supreme Court has upheld the constitutionality of the summary administrative procedures contained in the Internal Revenue Code against due process challenges, on the basis that a postcollection remedy (e.g., a tax refund suit) exists and is sufficient to satisfy the requirements of constitutional due process. 2. Contention: Federal income taxes constitute a taking of property without due process of law, violating the Fifth Amendment. The Internal Revenue Code provides methods to ensure due process to taxpayers: (1) the refund method, set forth in section 7422(e) and 28 U.S.C. '' 1341 and 1346(a), where a taxpayer must pay the

full amount of the tax and then sue in a federal district court or in the United States Court of Federal Claims for a refund; and (2) the deficiency method, set forth in section 6213(a), where a taxpayer may, without paying the contested tax, petition the United States Tax Court to redetermine a tax deficiency asserted by the IRS. Courts have found that both methods provide constitutional due process. 3. Contention: Taxpayers do not have to file returns or provide financial information because of the protection against selfincrimination found in the Fifth Amendment. Some argue that taxpayers may

refuse to file federal income tax returns, or may submit tax returns on which they refuse to provide any financial information, because they believe that their Fifth Amendment privilege against self-incrimination will be violated. 3. Contention: Taxpayers do not have to file returns or provide financial information because of the protection against selfincrimination found in the Fifth Amendment. The Law: There is no constitutional right to refuse to file an income tax return on the ground that it violates the Fifth Amendment privilege against

selfincrimination. In United States v. Sullivan, the U.S. Supreme Court stated that the taxpayer could not draw a conjurers circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law. The failure to comply with the filing and reporting requirements of the federal tax laws will not be excused based upon blanket assertions of the constitutional privilege against compelled selfincrimination under the Fifth Amendment. compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment.

This argument asserts that the compelled compliance with federal tax laws is a form of servitude in violation of the Thirteenth Amendment. The Law: The Thirteenth Amendment to the United States Constitution prohibits slavery within the United States, as well as the imposition of involuntary servitude, except as punishment for a crime of which a person shall have been duly convicted. In Porth v. Brodrick, the Court of Appeals stated that 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. Courts have consistently found arguments that taxation constitutes a form of involuntary servitude to be frivolous.

5. Contention: The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional. This argument is based on the premise that all federal income tax laws are unconstitutional because the Sixteenth Amendment was not officially ratified, or because the State of Ohio was not properly a state at the time of ratification. This argument has survived over time

because proponents mistakenly believe that the courts have refused 5. Contention: The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional. The Law: The Sixteenth Amendment provides that Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration. U.S. Const. amend.

XVI. The Sixteenth Amendment was ratified by forty states and issued by proclamation in 1913. Shortly thereafter, two other states also ratified the Amendment. Under Article V of the Constitution, only threefourths of the states are needed to ratify an Amendment. There were enough states ratifying the Sixteenth Amendment. Furthermore, the U.S. Supreme Court upheld the constitutionality of the income tax laws enacted subsequent to ratification of the Sixteenth Amendment in Brushaber v. Union Pacific R.R.. Since that time, the courts have consistently upheld the constitutionality of the federal income tax. 5. Contention: The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax

laws are unconstitutional. Similarly, Robert L. Schulz, along with his organizations, We the People Congress and We the People Foundation, marketed and distributed to customers a fraudulent Tax Termination Package supposedly providing a way for taxpayers to legally stop withholding and paying taxes. The scheme was based on a number of false premises, including the claim that the Sixteenth Amendment was not properly ratified. In August 2007, a federal court permanently enjoined Mr. Schulz and his organizations from promoting the scheme.

5. Contention: The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional. In March 2008, a federal court in California permanently barred Steven Hempfling from selling a tax fraud scheme that falsely claims to give customers a legal defense against criminal prosecutions for income tax evasion. The court found that Hempfling sold a 16th Amendment Reliance Program that falsely promised customers that they could rely on the opinion of an Illinois tax defier, William Benson, to stop filing tax returns and to stop paying federal taxes and avoid being convicted of federal tax crimes. The court also barred Hempfling from selling

how-to manuals that falsely tell customers that IRS tax liens and levies are invalid and that employers are not required to withhold federal income taxes from employees pay. 5. Contention: The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional. William Benson wrote the book The Law That Never Was, in which he asserts that the Sixteenth Amendment was not properly ratified. On his

website, Benson sold his book, accompanied with excepts from state legislative histories, records from the National Archives, court cases, and other materials, in what he titled a Reliance Defense Package. In January 2008, the District Court for the Northern District of Illinois granted a permanent injunction against Benson, barring him from promoting, organizing, or selling the Reliance Defense Package or the 16th Amendment Reliance Package or any other tax shelter, plan, or arrangement. United States v. Benson. 6. Contention: The Sixteenth Amendment does not authorize a direct non-apportioned federal income tax on

United States citizens. Some assert that the Sixteenth Amendment does not authorize a direct nonapportioned income tax and thus, U.S. citizens and residents are not subject to federal income tax laws. The Law: The constitutionality of the Sixteenth Amendment has invariably been upheld when challenged. And numerous courts have both implicitly and explicitly recognized that the Sixteenth Amendment authorizes a nonapportioned direct income tax on United States citizens and that the federal tax laws as applied are valid. In United States v. Collins, the court cited to Brushaber v. Union Pac. R.R., and noted that the U.S. Supreme Court has recognized that the sixteenth amendment authorizes a direct nonapportioned tax upon

United States citizens throughout the nation. Revenue Warnings The IRS has issued Revenue Warnings for every one of these arguments which discuss these frivolous arguments in more detail, warning taxpayers of the consequences of attempting to pursue a claim on these grounds. Conclusion This

is a serious matter we will spend significant amounts of time on. The biggest mistake we see people making is frivolous arguments and we often cant repair the damage they did while making the arguments. If you insist on frivolous arguments, you will be fined steeply by the I.R.S. and/or the Court. At that point, we can only do damage control. Frivolous arguments challenge the laws and authority of the Tax Service. Please join us next time while we unpack more of the rules, reasoning, and things to avoid when defending your case. Closing I

appreciate the opportunity given to share with others, the life's work of Dr. Clarkson and my passion and devotion to it. If anyone would like to ask questions now Id be happy to answer them or you can reach me through: website: http://www.YourRemedyIsInTheLaw.c om

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