Tax Law Archives - Page 23 of 41

IRS Debunks Common Frivolous Anti-tax Claims Made by Ignorant Idiots

The IRS released IR-2010-80, The Truth about Frivolous Tax Arguments, which debunks the most common frivolous arguments made by taxpayers who believe there is no federal income tax law, the earth is flat and Elvis is alive. The IRS says:

The Internal Revenue Service today released the 2010 version of its discussion and rebuttal of many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws. Anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read the 80-page document, The Truth about Frivolous Tax Arguments. The document explains many of the common frivolous arguments made in recent years and it describes the legal responses that refute these claims. It will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties. Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous. IRS highlighted in the document about 40 new cases adjudicated in 2009. Highlights include cases involving injunctions against preparers and promoters of Form 1099-Original Issue Discount schemes and injunctions against preparers and promoters of false fuel tax credit schemes.

Here are some of the frivolous arguments the IRS rebuts in IR-2010-80:

The Voluntary Nature of the Federal Income Tax System
1. Contention: The filing of a tax return is voluntary
2. Contention: Payment of tax is voluntary
3. Contention: Taxpayers can reduce their federal income tax liability by filing a “zero return”
4. Contention: The IRS must prepare federal tax returns for a person who fails to file
5. Contention: Compliance with an administrative summons issued by the IRS is voluntary
The Meaning of Income: Taxable Income and Gross Income
1. Contention: Wages, tips, and other compensation received for personal services are not income
2. Contention: Only foreign-source income is taxable
3. Contention: Federal Reserve Notes are not income
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
2. Contention: The “United States” consists only of the District of Columbia, federal territories, and federal enclaves
3. Contention: Taxpayer is not a “person” as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws
4. Contention: The only “employees” subject to federal income tax are employees of the federal government
Constitutional Amendment Claims
1. Contention: Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment
2. Contention: Federal income taxes constitute a “taking” of property without due process of law, violating the Fifth Amendment
3. Contention: Taxpayers do not have to file returns or provide financial information because of the protection against self-incrimination found in the Fifth Amendment
4. Contention: Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment
5. Contention: The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional
6. Contention: The Sixteenth Amendment does not authorize a direct nonapportioned federal income tax on United States citizens
Fictional Legal Bases
1. Contention: The Internal Revenue Service is not an agency of the United States
2. Contention: Taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with the Form 1040 do not display an OMB control number as required by the Paperwork Reduction Act
3. Contention: African Americans can claim a special tax credit as reparations for slavery and other oppressive treatment
4. Contention: Taxpayers are entitled to a refund of the Social Security taxes paid over their lifetime
5. Contention: An “untaxing” package or trust provides a way of legally and permanently avoiding the obligation to file federal income tax returns and pay federal income taxes
6. Contention: A “corporation sole” can be established and used for the purpose of avoiding federal income taxes
7. Contention: Taxpayers who did not purchase and use fuel for an off-highway business can claim the fuels tax credit
8. Contention: A Form 1099-OID can be used as a debt payment option or the form or a purported financial instrument may be used to obtain money from the Treasury

Another Obama Tax Hike

Wall St. Journal: “The Senate health-care bill would raise effective marginal tax rates on lower and middle-income singles and families up to 41%. The stunning victory of Scott Brown in Massachusetts may prove to be a game-changer for the President’s health-care “reform” agenda. This is good news for the ability of lower-income families lacking insurance to climb up the ladder of American prosperity. His associated rhetoric notwithstanding, the President’s policies in the stimulus bill and health-care debate increase current barriers to the American dream. These legislative efforts (we use the Senate health-care bill for illustration) raise to shocking levels the effective marginal tax rates (EMTR) on lower and middle-income singles and families–with the government taking up to 41% of each additional dollar.”

Backdoor Taxes to Hit Middle Class

Reuters: “The Obama administration’s plan to cut more than $1 trillion from the deficit over the next decade relies heavily on so-called backdoor tax increases that will result in a bigger tax bill for middle-class families. In the 2010 budget tabled by President Barack Obama on Monday, the White House wants to let billions of dollars in tax breaks expire by the end of the year — effectively a tax hike by stealth. . . . Millions of middle-class households already may be facing higher taxes in 2010 because Congress has failed to extend tax breaks that expired on January 1.”

Update on why the above link to a Reuters story no longer works: Presidential censorship – we should all be very worried when government can suppress the media. “Obama administration aides appealed to the Reuters White House reporting team to kill a story by another reporter of the news service that suggested the president’s new budget blueprint included “backdoor” tax hikes. A White House official told TPMDC the Reuters story was “falsely stating that the President’s budget raises taxes for middle class families, when in fact the opposite is true.” The official said when the administration saw the story, published yesterday afternoon, they contacted one of the Reuters White House correspondents.” See also “Reality Check on Taxes.”

The Ever Growing Tax Code

Don’t Mess with Taxes: “As you can see from this lovely graphic from the folks at CCH, interpreting the tax code gets tougher every year. Back when our current income tax code was put into place, CCH’s Standard Federal Tax Reporter needed 400 pages to examine the legislative, administrative and judicial aspects of the laws. That number held pretty steady until 1945, when it ballooned to 8,200 pages. By 1969, the pages of explanation had doubled. This year, the tax publishing company needed 71,684 pages to tell us all about our tax laws. As the hubby says, that’s just crazy!”

As a former-tax lawyer who took 18 semester credits of federal tax law related courses in law school and who holds a masters degree (LL.M.) in income tax law from New York University School of Law, I think it is outrageous that the federal tax law has become so bloated and incomprehensible. Why? Instead of using the tax code to to influence the behavior of people and companies, why doesn’t Congress throw out the entire tax code and replace it with a new tax law that says:

Tax owed = total amount of income you received last year times the applicable rate and have the applicable rate increase as the income increases?

Size of CCH Federal Tax Reporter

Nike Founder & Chairman Says New Tax Laws Passed by Oregonians Should be Called Oregon’s Assisted Suicide Law II

OregonLive.com: In a January 17, 2010, column, Nike co-founder and chairman Phil Knight warned Oregonians about the future of the state if proposed tax increases were to be approved by the voters. “Measures 66 and 67 should be labeled Oregon’s Assisted Suicide Law II. They will allow us to watch a state slowly killing itself. They are anti-business, anti-success, anti-inspirational, anti-humanitarian, and most ironically, in the long run, they will deprive the state of tax revenue, not increase it. . . . These measures . . . give Oregon the highest income tax rates in the country. Reputable economists forecast 66 and 67 will cost the state thousands — maybe tens of thousands — of jobs, and that thousands of our most successful residents will leave the state.”