Tax protester statutory arguments

Tax protester statutory arguments are arguments raised by tax protesters that assert that the assessment of the income tax in the United States is in violation of the statutes enacted by the United States Congress and signed into law by the President. Such arguments generally claim that the statutes fail to create a duty to pay taxes, that such statutes do not impose the income tax on wages or other types of income claimed by the tax protesters, or that provisions within the statutes exempt the tax protesters from a duty to pay. Other arguments contend that the Internal Revenue Service is not authorized by statute to assess income taxes, or to penalize persons who fail to file a return or pay the tax assessed.

These kinds of arguments are distinguished from related constitutional arguments and general conspiracy arguments. They presuppose that Congress has the power to assess a tax on incomes, but argue that it has simply failed to do so. However, supporters of such arguments may also be inclined to contend that constitutional and conspiracy arguments apply as well.

Arguments about tax administration and process

Some tax protesters argue that there is no law imposing a Federal income tax or requiring a payment of tax, or that the government is obligated to show the tax protesters the law or tell the protesters why they are subject to tax.

Statutes imposing obligations to file income tax returns and pay taxes

A common argument raised by tax protesters is the claim that "there is no law requiring an income tax". However, although the specific statutes imposing an income tax may be generally unknown to persons other than tax lawyers, certified public accountants and other tax specialists, it can easily be demonstrated that such laws exist.

Internal Revenue Code sections 1 (26 U.S.C. § 1) (relating to individuals, estates and trusts) and 11 (26 U.S.C. § 11) (relating to corporations) are examples of statutes that expressly impose an income tax on "taxable income" (with section 1(a), for example, expressly using the phrase "[t]here is hereby imposed on the taxable income of [ . . . ]"). The term "taxable income" is in turn defined in section 63 (26 U.S.C. § 63) with reference to "gross income" which in turn is defined in 26 U.S.C. § 61.

For the duty to pay the tax at the time prescribed for filing the related tax return, see 26 U.S.C. § 6151. For civil monetary penalties for failure to timely pay taxes, see 26 U.S.C. § 6651(a)(2).

The requirement to file Federal income tax returns is imposed at 26 U.S.C. § 6012 (see also 26 U.S.C. § 6011). Civil monetary penalties for failure to timely file tax returns are imposed at 26 U.S.C. § 6651(a)(1).

Criminal penalties for willful failure to timely file tax returns or pay taxes are prescribed at 26 U.S.C. § 7203. Criminal penalties for willfully filing false tax returns are imposed under 26 U.S.C. § 7206, 26 U.S.C. § 7207 and 18 U.S.C. § 1001. The general Federal tax evasion statute is 26 U.S.C. § 7201.

The "income taxes are voluntary" argument

Some tax protesters argue that filing of Federal income tax returns or payment of taxes is "voluntary" (in the sense of "not a legal obligation") based on language in the text of numerous court cases, such as the following: "Our system of taxation is based upon voluntary assessment and payment, not upon distraint" (from the U.S. Supreme Court case of Flora v. United States, 362 U.S. 145 (1960)).

Flora was a decision on a rehearing confirming the decision in a case decided and reported as Flora v. United States, 357 U.S. 63 (1958). In Flora, the Supreme Court ruled that a Federal District Court does not have subject matter jurisdiction to hear a lawsuit by a taxpayer for a Federal income tax refund where the taxpayer has not paid the entire amount assessed (the rule, known as the Flora full payment rule, does not apply to U.S. Tax Court cases or bankruptcy cases). Tax protesters sometimes cite the language in cases like Flora for the contention that filing of tax returns and paying taxes is not legally required, i.e., that the filing of returns and paying of taxes is, in that sense, "voluntary".

However, in the Flora case the taxpayer did not contend, and the court did not rule, that there was no legal obligation to file Federal income tax returns or pay the related taxes. Indeed, the Court's ruling in Flora was almost the opposite: the taxpayer was required to pay the full amount of tax claimed by the IRS to be owed by the taxpayer before the court would even hear a lawsuit by the taxpayer against the government to determine the correct amount of tax.

The quoted language from Flora refers to the Federal income tax: "Our system of taxation is based upon voluntary assessment and payment, not upon distraint." The key words are "voluntary" and "distraint." Like many legal terms, "voluntary" has more than one legal meaning. In the context of the quoted sentence, the income tax is voluntary in that the person bearing the economic burden of the tax is the one required to compute (assess) the amount of tax and file the related tax return. In this sense, a state sales tax is not a voluntary tax - i.e., the purchaser of the product does not compute the tax or file the related tax return. The store at which he or she bought the product computes the sales tax, charges the customer, collects the tax from him at the time of sale, prepares and files a monthly or quarterly sales tax return and remits the money to the taxing authority.

In Flora, the Court used the word "voluntary" in opposition to the word "distraint." Distraint is a legal term used in various contexts. For example, distraint is used to refer to the act of a landlord who withholds property of the tenant already in the landlord’s possession to secure payment of past due rent. The property "held for ransom," in a sense, is said to be "distrained," or "distressed." The key connotation of the word "distraint" is that there is often a taking of possession or withholding of property to induce a debtor to pay an obligation. Once the debt is paid, the property is released.

By contrast, the Internal Revenue Service does not seize the property of taxpayers each January to induce taxpayers to file a tax return and pay the tax by April 15th. The IRS relies on "voluntary" compliance as the term is used in this sense.

In the separate sense of the word "voluntary" in which some tax protesters use the term, the obligation to pay the tax and file the return is not voluntary -- for either income tax or sales tax. For example, the Internal Revenue Code is full of statutes specifically imposing the obligation to file returns and pay taxes, and imposing civil and criminal penalties for willful failure to do so on a timely basis (see above). The difference is that in the case of the income tax, the taxpayer files the return, whereas in the case of the sales tax, the seller (not the customer) files the return.

Likewise, the word "assessment" has more than one tax law meaning. In the quote from Flora the term "assessment" does not refer to a statutory assessment by the Internal Revenue Service under 26 U.S.C. § 6201 and 26 U.S.C. § 6322 and other statutes (i.e., a formal recordation of the tax on the books and records of the United States Department of the Treasury). The term is instead used in the sense in which the taxpayer himself or herself "assesses" or computes his or her own tax in the process of preparing a tax return, prior to filing the return.

Similarly, the word "deficiency" has more than one technical meaning under the Internal Revenue Code: one kind of "deficiency" for purposes of 26 U.S.C. § 6211 relating to statutory notices of deficiency, U.S. Tax Court cases, etc. (meaning, usually, the excess of the amount that the IRS claims is the correct tax over the amount the taxpayer claims is the correct tax -- both computed without regard to how much of that tax has been paid) as opposed to another kind of "deficiency" for purposes of the case law under the tax evasion and other criminal statutes (meaning, essentially, the amount of unpaid tax actually owed). Tax law, like other areas of law, is replete with words like "voluntary," "assessment," and "deficiency" that have varying meanings depending on the varying legal contexts in which those terms are used.

With respect to the use of the term "voluntary," no court has ever ruled (as of July 2006) that there is no legal obligation under the Internal Revenue Code of 1986 to timely file Federal income tax returns or to timely pay Federal income taxes.

Demanding an explanation of tax obligations

Some tax protesters claim the following language from a court decision in Schulz v. Internal Revenue Service, 395 F.3d 463, 2005-1 U.S. Tax Cas. (CCH) paragr. 50,165 (2d Cir. 2005) (per curiam), means that a taxpayer has a due process right to demand a response from the IRS as to why he or she is subject to taxation:

. . .absent an effort to seek enforcement through a federal court, IRS summonses apply no force to taxpayers, and no consequence whatever can befall a taxpayer who refuses, ignores, or otherwise does not comply with an IRS summons until that summons is backed by a federal court order. . . . any individual subject to [such a court order] must be given a reasonable opportunity to comply and cannot be held in contempt, arrested, detained, or otherwise punished for refusing to comply with the original IRS summons, no matter the taxpayer's reasons, or lack of reasons for so refusing. [1]

However, the court in Schulz did not rule that a taxpayer has a right to have the IRS explain why he or she is subject to taxation, and that issue was not even presented to the court. The taxpayer in the case had filed motions in a federal court to quash administrative summonses issued by the IRS seeking testimony and documents in connection with an IRS investigation. The Court of Appeals for the Second Circuit affirmed the dismissal of the taxpayer's motions for a lack of subject matter jurisdiction because there was no actual case or controversy as required by Article III of the Constitution. The summonses posed no threat of injury to the taxpayer, as the IRS had not yet initiated enforcement proceedings against him. In other words, the taxpayer was not entitled to a court order to quash the summonses until the IRS went to court to demand that he comply with the summons or otherwise face sanctions -- which the IRS had not yet done. Once the IRS took that action, the taxpayer would then have ample opportunity to challenge the validity of the summonses.

The confusion results when a quotation is taken out of context. The court was emphasizing that the law requires the IRS to use the judicial process to punish lack of compliance with an administrative summons; the summons is not self-enforcing. This is true of any government request where the citizen is free to ignore the request until the government brings enforcement action. Courts adjudicate only actual controversies. In the Schulz case the court wanted to leave room for the possibility that the IRS might decide to drop the investigation and never enforce the summonses or that the plaintiff might voluntarily comply with the request. Until the IRS took the taxpayer to court, the injury was merely "hypothetical."

While there is disagreement over exactly how "imminent" an injury has to be before a taxpayer can obtain relief from a court, this has nothing to do with the obligation to timely file a tax return (which is imposed by statute). The Schulz court did not rule that the IRS was required to "explain" to the taxpayer why he had to pay taxes, but rather that the taxpayer could not obtain a court order to quash the summonses until the IRS first went to court against him. Additionally, the taxpayer was challenging requests for documents and testimony for an investigation (similar to challenging a subpoena or warrant), not demanding that the IRS explain to him why he was subject to taxation. The court did not rule that a taxpayer has no obligation to respond to a summons until the IRS undertakes proceedings against the taxpayer. The court essentially ruled that the taxpayer cannot be punished for failing to comply until the taxpayer has violated a court order mandating compliance.

Arguments about lack of regulations

Some tax protesters have tried to argue that because the Department of the Treasury has promulgated official regulations for some but not all Internal Revenue Code provisions, there can be no obligation to file income tax returns or pay taxes. The courts have uniformly rejected this argument, ruling that duties imposed by statute cannot be avoided merely because the IRS or some other agency has not promulgated a regulation under that statute, and that the mere fact that a statute specifies that an agency is authorized to promulgate a regulation does not necessarily mean that the agency is required to do so.

For court decisions on the "lack of regulations" arguments, see Carpa v. Smith, 98-2 U.S. Tax Cas. (CCH) paragr. 50,627 (D. Ariz. 1998); United States v. Langert, 902 F. Supp. 999, 95-2 U.S. Tax Cas. (CCH) paragr. 50,504 (D. Minn. 1995); Russell v. United States, 95-1 U.S. Tax Cas. (CCH) paragr. 50,029 (W.D. Mich. 1994); United States v. Washington, 947 F. Supp. 87, 97-1 U.S. Tax Cas. (CCH) paragr. 50,129 (S.D.N.Y. 1996); United States v. Hicks, 947 F.2d 1356, 91-2 U.S. Tax Cas. (CCH) paragr. 50,549 (9th Cir. 1991).

Arguments about authority of IRS employees

Some tax protesters argue that even if the Internal Revenue Code provides for penalties, IRS employees do not have the authority to assert penalties -- basing the argument on Internal Revenue Code section 6020(b)(1) which states:

Authority of Secretary to execute return.

If any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise.

Some protesters contend that this provision somehow shows that IRS agents have no authority to impose penalties unless they have a delegation from the Secretary of the Treasury, although the logic of the argument is unclear given that the function of imposing penalties is a separate function from that of preparing section 6020(b) returns.

Tax protesters sometimes assert that court decisions that IRS agents have delegated powers from the Secretary of the Treasury constitute a blatant disregard for the law, which tax protesters cite as proof that the finding of the court is somehow opposite of what the law says. At any rate, under 26 U.S.C. § 6020, 26 U.S.C. § 7701(a)(11)(B), and 26 U.S.C. § 7701(a)(12)(A)(i) and the Treasury regulation at 26 C.F.R. section 301.6020-1(a)(1), IRS agents do indeed have the delegated power to prepare section 6020(b) returns (see Craig v. Lowe, 96-2 U.S. Tax Cas. (CCH) paragr. 50,416 (N.D. Calif. 1996), aff'd on other grounds, 97-1 U.S. Tax Cas. (CCH) paragr. 50,316 (9th Cir. 1997)). See also Delegation Order 182 (Rev. 7), at IRM 1.2.44.5 (5 May 1997), which specifically delegates this authority to Internal Revenue Agents, Tax Auditors, and Revenue Officers of grade GS-9 and above, and to various other IRS personnel. In Craig, the taxpayer argued that only the Secretary of the Treasury himself or herself was authorized under section 6020 to prepare returns for taxpayers despite the plain language of section 6020 which uses the word "Secretary" (without the phrase "of the Treasury"). Under section 7701(a)(11)(B), where used in the Internal Revenue Code without the phrase "of the Treasury," the term "Secretary" means the "Secretary of the Treasury or his delegate" (Italics added). The phrase "or his delegate" is defined in part as "any officer, employee, or agency of the Treasury Department duly authorized [ . . . ] to perform the function mentioned or described [ . . . ]" (see section 7701(a)(12)(A)(i)). The Court rejected the taxpayer's argument, and ruled that an IRS Revenue Agent "plainly falls" within the cited Treasury regulation.

Another group of protesters claims the existing law demands income tax only from federal employees and residents of US territories. Their argument does not rely on nonpassage of the 16th Amendment, but does suggest it.[2] They have asked the IRS and other authorities to cite the laws requiring others to pay income tax. This group claims never to have received an answer.

Arguments about the legal status of the Internal Revenue Service

A somewhat incidental claim of tax protesters is that because the IRS itself was not created by statute or because the IRS has no legal capacity to "sue or be sued," the IRS must somehow not really be a federal government agency. Some claim it is a Puerto Rican trust [3]. The courts have uniformly rejected such arguments. As explained below, the "Internal Revenue Service" is specifically referred to in statutes and regulations as both an "agency" and a "bureau."

Although the IRS, as a bureau within the Treasury Department, was not created by statute (and no law requires that the IRS, as a bureau within an executive department, be "created" by statute), the United States Supreme Court, in Chrysler Corp. v. Brown, 441 U.S. 281 (1979), specifically referred to the Revenue Act of 1862, the "Act of July 1, 1862, ch. 119, 12 Stat. 432, the statute to which the present Internal Revenue Service can be traced". (The 1862 Act created the office of Commissioner of Internal Revenue.)

Due to the doctrine of sovereign immunity, the IRS itself (along with many other Federal agencies) does not, as a general rule, have the capacity to "sue and be sued" -- a concept separate from that of whether the IRS is a U.S. "government agency." See, for example, Thompson v. Department of Treasury, Internal Revenue Service and United States of America, 2006-2 U.S. Tax Cas. (CCH) paragr. 50,392 (W.D. Pa. 2006) (hereinafter Thompson) where the court stated that the "Department of the Treasury" and "Internal Revenue Service" are "federal agencies within the United States Government. Federal agencies may not be sued in their own name except to the extent Congress may specifically allow such suits". Also, "Congress has made no provisions for suits against either the IRS or the Treasury Department, so these agencies are not proper entities for suit. Where taxpayers are authorized to sue on matters arising out of IRS actions, the United States is the proper party defendant" (from Devries v. Internal Revenue Service, 359 F. Supp. 2d 988 (E.D. Calif. 2005), as quoted in Thompson).

Some tax protesters even claim that the Internal Revenue Service is not mentioned in the statutes, despite the fact that the Internal Revenue Code contains at least 179 specific references to "Internal Revenue Service" (including references in headings of sections, subsections, etc.). Many Internal Revenue Code sections contain multiple references to "Internal Revenue Service" (for example, thirteen mentions in 26 U.S.C. § 6103, ten mentions in 26 U.S.C. § 6110, eighteen mentions in 26 U.S.C. § 7430, and thirty-three separate mentions in 26 U.S.C. § 7803). At least nineteen references to "Internal Revenue Service" are found in titles 2, 5, 12, 23, 31, and 42 of the United States Code. For example, 5 U.S.C. § 500(c) refers to the "Internal Revenue Service" as an "agency" of the Treasury Department. According to the official web site of the U.S. Department of the Treasury, the Internal Revenue Service is a bureau located within the Department [4].

The official U.S. Treasury regulations provide (in part):

The Internal Revenue Service is a bureau of the Department of the Treasury under the immediate direction of the Commissioner of Internal Revenue. The Commissioner has general superintendence of the assessment and collection of all taxes imposed by any law providing internal revenue. The Internal Revenue Service is the agency by which these functions are performed.

26 C.F.R. section 601.101(a).

The "Internal Revenue Service" is also listed as a "component" and "agency" of the U.S. Department of the Treasury in the official government regulations for "Supplemental Standards of Ethical Conduct for Employees of the Department of the Treasury" at 5 C.F.R. section 3101.102(f). The House Committee Report accompanying the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat. 685 (July 22, 1998), specifically refers to the IRS as being one of the "agencies within the Treasury." See H.R. Rep. No. 105-364, pt. 1.)

The 861 argument

Internal Revenue Code section 861 relates to the taxes imposed on nonresident alien individuals and certain foreign corporations. The language of Section 861 is occasionally cited by tax protesters who claim that the statute excludes some portion of the income of U.S. citizens and resident aliens from taxation under the provisions of the Code. However, the income taxes imposed on U.S. citizens and resident aliens are generally imposed under Subchapter A (not Subchapter N) of Chapter 1 of the Code. Also, the actual text of section 861 itself contains no language to the effect that any portion of the income of U.S. citizens and resident aliens (whether the income is from sources within the United States or not) is somehow "excluded" from taxation.

For example, the Internal Revenue Service relates the following:

On November 22, 2005, in Philadelphia, PA, Larken Rose was sentenced to 15 months in prison, followed by one year supervised release and fined $10,000. Rose was convicted by jury in August 2005 to five counts of willful failure to file federal income tax returns. According to the evidence introduced at trial, Rose willfully failed to file personal federal income tax returns for calendar years 1998 through 2002, despite earning $500,000 during those years. On those amended returns, he reported no tax due and requested a refund for all income taxes paid in those years. At trial, Rose claimed that he failed to file returns and sought refund claims based on his determination that his income received inside the United States was not taxable under Internal Revenue Code Section 861 and regulations. The judge instructed the jury that this Section 861 argument is incorrect as a matter of law.[5]

Proponents of the belief that section 861 eliminates the need for U.S. citizens and resident aliens to pay Federal income taxes sometimes claim that the IRS tries to hide the existence of the section. Such persons claim that the convictions for tax evasion based on the invocation of this law are proof of a vast conspiracy involving all judges, legislators, and executive branch officials. However, section 861 is a public law published on numerous government websites and consulted by tax preparers. See the Cornell University Law School version of this U.S. Code provision at 26 U.S.C. § 861; see also the U.S. Code provision at the web site for the Office of Law Revision Counsel, U.S. House of Representatives [[6] Further, the Internal Revenue Service references section 861 in numerous places on its own web site. [7]

The courts have consistently ruled that the argument that Section 861 excludes income of U.S. citizens and resident aliens from taxation is without legal merit. See Aiello v. Commissioner, 69 T.C.M. (CCH) 1765, T.C. Memo 1995-40 (1995); Williams v. Commissioner, 114 T.C. 136 (2000); and United States v. Bell, 238 F. Supp. 2d 696, 2003-1 U.S. Tax Cas. (CCH) paragr. 50,501 (M.D. Pa. 2003).

The OMB control number argument

One argument of tax protesters is that they are not liable to file returns or pay taxes because, they argue, Form 1040 does not contain an "OMB control number" (a number issued by the U.S. Office of Management and Budget under the Paperwork Reduction Act.) The logic of this argument is unclear, as Form 1040, U.S. Individual Income Tax Return, does contain the OMB control number, and has included the number for every tax year since 1981. (The number is in the upper right corner of page 1 of the form. The short forms, Form 1040A and Form 1040EZ, also bear OMB control numbers.)

At any rate, the courts have ruled that there is no legal requirement that an IRS tax form bear an OMB control number in order for a taxpayer to be legally obligated to file Federal income tax returns and pay the related taxes, and there is no requirement of an OMB number in order for the taxpayer to be properly convicted of tax crimes -- as these are tax obligations imposed by statute and therefore cannot be obviated by presence or lack of an OMB control number on a tax form. The regulations for the OMB control number under the Paperwork Reduction Act specifically mention statutory tax obligations, providing (in part):

§ 1320.6 Public protection.

(a) Notwithstanding any other provision of law, no person shall be subject to any penalty for failing to comply with a collection of information that is subject to the requirements of this part if:

(1) The collection of information does not display, in accordance with §1320.3(f) and §1320.5(b)(1), a currently valid OMB control number assigned by the Director in accordance with the Act [ . . . ]

(e) The protection provided by paragraph (a) of this section does not preclude the imposition of a penalty on a person for failing to comply with a collection of information that is imposed on the person by statute—e.g., 26 U.S.C. §6011(a) (statutory requirement for person to file a tax return) [ . . . . ]

5 C.F.R. sec. 1320.6.

Despite the presence of the OMB control number on Form 1040 and despite the language of regulation 1320.6(e), tax protesters have repeatedly attempted to litigate the "OMB control number argument," but without success. See Salberg v. United States, 969 F.2d 379, 92-2 U.S. Tax Cas. (CCH) paragr. 50,490 (7th Cir. 1992); Lonsdale v. United States, 919 F.2d 1440, 90-2 U.S. Tax Cas. (CCH) paragr. 50,581 (10th Cir. 1990); United States v. Wunder, 919 F.2d 34, 90-2 U.S. Tax Cas. (CCH) paragr. 50,575 (6th Cir. 1990); McDougall v. Commissioner, 64 T.C.M. (CCH) 1405, T.C. Memo 1992-683 (1992), aff'd per curiam without opinion, 15 F.3d 1987 (9th Cir. 1993); United States v. Barker, 90-2 U.S. Tax Cas. (CCH) paragr. 50,490 (N.D. Calif. 1990).

At least one taxpayer has tried to argue that the tax regulations and IRS instruction books (as opposed to the tax forms) have to include an OMB control number. That argument has also been rejected. See, for example, United States v. Dawes, 951 F.2d 1189, 92-2 U.S. Tax Cas. (CCH) paragr. 50,493 (10th Cir. 1991).