Every year, millions of Americans file an honest, legal tax return. Just as often, however, thousands of taxpayers fall prey to scam artists or anti-government extremists who promote an assortment of frivolous and illegal schemes to avoid paying income taxes.
In our June newsletter, I referred to one of those frivolous tax arguments, and hinted that it would make a great topic for a future newsletter. Well, the future is here! So take a minute and read up on some of the most common examples of unsupportable excuses that your fellow Americans cook up for dodging their legitimate tax obligations. Hopefully you will find them as amusing as I do, although a surprising number of people take them very seriously indeed.
Filing a tax return/paying taxes is voluntary – Some taxpayers assert that filing a federal tax return or paying income tax is not required because it says in the instructions for Form 1040 that the U.S. tax system is voluntary. In addition, tax dodgers often quote from a 1960 Supreme Court opinion, Flora v. United States, which states, in part, “[o]ur system of taxation is based upon voluntary assessment and payment, not distraint.”
Actually, the word “voluntary,” as used in Flora and in IRS publications, refers only to our system of allowing taxpayers to initially determine the correct amount of tax and complete the appropriate returns on their own, rather than having the government determine it for them from the outset. In fact, tax is due on almost all sources of income as it is earned, and any taxpayer who has received more than a specified amount of income, which is determined by law and adjusted periodically for inflation, is obligated to file a return.
Failure to do so could subject the non-complying individual to criminal penalties that include fines and imprisonment, as well as civil penalties. In 1986, the court ruled in United States v. Tedder, “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.”
Wages, tips and other compensation received for personal services are not income – This argument takes various forms, all of which require a deliberate and willing suspension of common sense. The gist in every instance is that exchanging labor for money does not constitute gain because people have a basis in their labor equal to the fair market value of the wages they receive, or that income earned in exchange for labor is a wash because the labor is essentially a “deductible expense.”
Another similar theory holds that the Sixteenth Amendment to the U.S. Constitution did not authorize a tax on wages and salaries, but only on gain or profit, presumably from the sale of goods or property.
In reality, for federal income tax purposes, “gross income” means all income from whatever source derived, including compensation for services. It is, after all, an income tax. The definition of income in the tax code is so all-inclusive that the law doesn’t even bother to define it. Instead, it only defines those examples that are specifically exempted or excluded. In other words, for simplicities’ sake, the law defines income based on what it is not, rather than on what it is, because it is essentially everything a person earns.
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.” The language of the Sixteenth Amendment is equally clear. It 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 census or enumeration. The Supreme Court upheld the constitutionality of the income tax laws enacted following ratification of the Sixteenth Amendment in Brushaber v. United States in 1916. Since then, all courts have consistently sustained the constitutionality of a federal income tax.
Arguments to the contrary are considered so baseless after all this time that they are now routinely dismissed by the courts without consideration whenever they are raised. Furthermore, criminal and civil penalties have been imposed against individuals who use them.
These are just a few of the feeble claims that some taxpayers continue to raise in defense of the essentially selfish position that they do not need to contribute their fair share to the cost of living in a free and prosperous society. We will revisit more of them in future newsletters.
While you may find them amusing, as I do, or shake your head in disbelief, I include them here because in these political times a surprising number of people continue to fall for them. I suspect that this is not only due to sheer greed—afterall, who wouldn’t like to pocket thousands of extra dollars every year –but also to a misplaced sense of patriotism that considers the very government our forefathers fought and died to establish as now, somehow, our enemy, rather than our common heritage and a blessing.
Please don’t be one of them. But if you do, be prepared for it to end badly, and remember I told you so.