Are Income Taxes Legal?
The federal income tax was established by the 16th Amendment to the Constitution, which reads: "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."
The amendment was proposed by Congress in July, 1909, and declared law in February, 1913, after 36 of the then-48 states ratified it. Opponents of the tax, however, contend that the 16th amendment was improperly ratified by some of the states, and thus is invalid.
The Internal Revenue Service, which has long faced challenges to the income tax on legal grounds, has a 54-page bulletin on its website aimed at responding point by point to common arguments against the income tax.
The bulletin "The Truth About Frivolous Tax Arguments," was originally published at the main IRS Web site.
The IRS has responded to some of the more common frivolous “legal” arguments made by
individuals and groups who oppose compliance with the federal tax laws. The
IRS groups these arguments under six general categories, with variations
within each category. Each contention agailst the tax collection is briefly explained, followed by a
discussion of the legal authority that rejects the contention. The second section
responds to some of the more common frivolous arguments made in collection
due process cases brought pursuant to sections 6320 or 6330.
These
arguments are grouped under ten general categories and contain a brief
description of each contention followed by a discussion of the correct legal
authority. A final section explains the penalties that the courts may impose on
those who pursue tax cases on frivolous grounds. It should be noted that the
cases cited as relevant legal authority are illustrative and are not intended to
provide an all-inclusive list relating to frivolous tax arguments.
FRIVOLOUS TAX ARGUMENTS IN GENERAL
A. The Voluntary Nature of the Federal Income Tax System
1. 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. Additionally, the Supreme Court’s opinion in Flora v. United States, 362 U.S. 145, 176 (1960), is often quoted for the proposition that "[o]ur system of taxation is based upon voluntary assessment and payment, not upon distraint."
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 file an income tax return is not voluntary and is clearly set forth in sections 6011(a), 6012(a), et seq., and 6072(a). See also Treas. Reg. § 1.6011-1(a).
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, 787 F.2d 540, 542 (10th Cir. 1986), 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 compliance with the tax laws are entirely proper.” The IRS issued Revenue Ruling 2007-20, 2007-14 I.R.B. 863, warning taxpayers of the consequences of making this frivolous argument.
In August 2005, the Justice Department announced that Royal Lamarr Hardy was sentenced to a 156-month prison term 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. See 2005 TNT 169-12 (Aug. 31, 2005). 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.
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 terminated. See http://www.usdoj.gov/tax/txdv07214.htm, and http://www.usdoj.gov/tax/txdv07595.htm. The result in this case was affirmed on appeal and certiorari was denied. United States v. Schulz, 529 F. Supp. 2d 341 (N.D.N.Y. 2007), aff'd, 517 F.3d 606 (2d Cir. 2008), cert. denied, 129 S.Ct. 435 (2008).
Relevant Case Law:
Helvering v. Mitchell, 303 U.S. 391, 399 (1938) – the U.S. Supreme Court stated that “[i]n assessing income taxes, the Government relies primarily upon the disclosure by the taxpayer of the relevant facts . . . in his annual return. To ensure full and honest disclosure, to discourage fraudulent attempts to evade the tax, Congress imposes [either criminal or civil] sanctions.”
United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993), cert. denied, 510 U.S. 1193 (1994) – the court held that “[a]ny assertion that the payment of income taxes is voluntary is without merit.” United States v. Tedder, 787 F.2d 540, 542 (10th Cir. 1986) – the court upheld a conviction for willfully failing to file a return, stating that the premise “that the tax system is somehow ‘voluntary’ . . . is incorrect.”
United States v. Richards, 723 F.2d 646, 648 (8th Cir. 1983) – the court upheld conviction and fines imposed for willfully failing to file tax returns, stating that the claim that filing a tax return is voluntary “was rejected in 3 United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983), cert. denied, Jameson v. United States, 464 U.S. 642 (1983) – wherein the court described appellant’s argument as ‘an imaginative argument, but totally without arguable merit.’”
Johnson v. Commissioner, T.C. Memo. 1999-312, 78 T.C.M. (CCH) 468, 471 (1999), aff’d, 242 F.3d 382 (9th Cir. 2000) – the court found Johnson liable for the failure to file penalty and rejected his argument “that the tax system is voluntary so that he cannot be forced to comply” as “frivolous.” Woods v. Commissioner, 91 T.C. 88, 90 (1988) – the court rejected the claim that reporting income taxes is strictly voluntary, referring to it as a “‘tax protester’ type” argument, and found Woods liable for the penalty for failure to file a retur
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