Do We Have To Pay Taxes?

I have written several articles on postings related to politics. A list of links has been provided at the bottom of this article for your convenience. This article will, however, address different aspects of these political events.

The meaning of income: Taxable income and gross income

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 receive; thus, there is no gain to be taxed. 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.

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, 24 F.3d 228, 231 (Fed. Cir. 1994), 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.”

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.

Relevant case law:

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-30 (1955) – Referring to the statute’s words “income derived from any source whatever,” the Supreme Court stated, “this language was used by Congress to exert in this field ‘the full measure of its taxing power.’ . . . And the Court has given a liberal construction to this broad phraseology in recognition of the intention of Congress to tax all gains except those specifically exempted.”

Commissioner v. Kowalski, 434 U.S. 77 (1977) – The Supreme Court found that payments are considered income where the payments are undeniably accessions to wealth, clearly realized, and over which a taxpayer has complete dominion.

United States v. Connor, 898 F.2d 942, 943-44 (3d Cir.), cert. denied, 497 U.S. 1029 (1990) – The court stated, “[e]very court which has ever considered the issue has unequivocally rejected the argument that wages are not income.”

Lonsdale v. Commissioner, 661 F.2d 71, 72 (5 th Cir. 1981) – The court rejected as “meritless” the taxpayer’s contention that the “exchange of services for money is a zero-sum transaction . . . .” Reading v. Commissioner, 70 T.C. 730 (1978), aff’d, 614 F.2d 159 (8 th Cir. 980) – The court said the entire amount received from the sale of one’s services constitutes income within the meaning of the Sixteenth Amendment. United States v. Richards, 723 F.2d 646, 648 (8 th Cir. 1983) – The court upheld conviction and fines imposed for willfully failing to file tax returns, stating that the taxpayer’s contention that wages and salaries are not income within the meaning of the Sixteenth Amendment is “totally lacking in merit.”

United States v. Romero, 640 F.2d 1014, 1016 (9 th Cir. 1981) – The court affirmed Romero’s conviction for willfully failing to file tax returns, finding, in part, that “[t]he trial judge properly instructed the jury on the meaning of [‘income’ and ‘person’]. Romero’s proclaimed belief that he was not a ‘person’ and that the wages he earned as a carpenter were not ‘income’ is fatuous as well as obviously incorrect.” Abrams v. Commissioner, 82 T.C. 403, 413 (1984) – The court rejected the argument that wages are not income, sustained the failure to file penalty, and awarded damages of $5,000 for pursuing a position that was “frivolous and groundless . . . and maintained primarily for delay.”

Cullinane v. Commissioner, T.C. Memo. 1999-2, 77 T.C.M. (CCH) 1192, 1193 (1999) – Noting that “[c]ourts have consistently held that compensation for services rendered constitutes taxable income and that taxpayers have no tax basis in their labor,” the court found Cullinane liable for the failure to file penalty, stating, “[his] argument that he is not required to pay tax on compensation for services does not constitute reasonable cause.”

Contention: Only foreign-source 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, et seq., and 911, et seq., as well as the regulations under those sections.

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, Treasury Regulation § 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. Further, these frivolous assertions are clearly contrary to well-established legal precedent. “Recently the IRS explained its position on the I.R.C. 861 argument in Rev. Rul. 2004-30 and on the I.R.C. 911 argument in Rev. Rul. 2004-28.”

Relevant case law:

Williams v. Commissioner, 114 T.C. 136, 138 (2000) – The court rejected the taxpayer’s argument that his income was not from any of the sources listed in Treas. Reg. § 1.861-8(a), characterizing it as “reminiscent of tax-protester rhetoric that has been universally rejected by this and other courts.”

Aiello v. Commissioner, T.C. Memo. 1995-40, 69 T.C.M. (CCH) 1765 (1995) – The court rejected the taxpayer’s argument that the only sources of income for purposes of section 61 are listed in section 861.

Madge v. Commissioner, T.C. Memo. 2000-370, 80 T.C.M. (CCH) 804 (2000) – The court labeled as “frivolous” the position that only foreign income is taxable.

Solomon v. Commissioner, T.C. Memo. 1993-509, 66 T.C.M. (CCH) 1201, 1202 (1993) – The court rejected the taxpayer’s argument that his income was exempt from tax by operation of sections 861 and 911, noting that he had no foreign income and that section 861 provides that “compensation for labor or personal services performed in the United States . . . are items of gross income.”

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.

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. See 31 U.S.C. § 5103; 12 U.S.C. § 411. In United States v. Rifen, 577 F.2d 1111 (8 th Cir. 1978), 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.” Id. at 1112. The courts have rejected this argument on numerous occasions.

Relevant case law:

United States v. Rickman, 638 F.2d 182, 184 (10 th Cir. 1980) – The court affirmed the conviction for willfully failing to file a return and rejected the taxpayer’s argument that “the Federal Reserve Notes in which he was paid were not lawful money within the meaning of Art. 1, § 8, United States Constitution.”

United States v. Condo, 741 F.2d 238, 239 (9 th Cir. 1984) – The court upheld the taxpayer’s criminal conviction, rejecting as “frivolous” the argument that Federal Reserve Notes are not valid currency, cannot be taxed, and are merely “debts.”

United States v. Daly, 481 F.2d 28, 30 (8 th Cir.), cert. denied, 414 U.S. 1064 (1973) – The court rejected as “clearly frivolous” the assertion “that the only ‘Legal Tender Dollars’ are those which contain a mixture of gold and silver and that only those dollars may be constitutionally taxed” and affirmed Daly’s conviction for willfully failing to file a return.

Jones v. Commissioner, 688 F.2d 17 (6 th Cir. 1982) – The court found the taxpayer’s claim that his wages were paid in “depreciated bank notes” as clearly without merit and affirmed the Tax Court’s imposition of an addition to tax for negligence or intentional disregard of rules and regulations.

Historical Highlights of the IRS

1862 – President Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. The measure created a Commissioner of Internal Revenue and the nation’s first income tax. It levied a 3 percent tax on incomes between $600 and $10,000 and a 5 percent tax on incomes of more than $10,000.

1867 – Heeding public opposition to the income tax, Congress cut the tax rate. From 1868 until 1913, 90 percent of all revenue came from taxes on liquor, beer, wine and tobacco.

1872 – Income tax repealed.

1894 – The Wilson Tariff Act revived the income tax and an income tax division within the Bureau of Internal Revenue was created.

1895 – Supreme Court ruled the new income tax unconstitutional on the grounds that it was a direct tax and not apportioned among the states on the basis of population. The income tax division was disbanded.

1909 – President Taft recommended Congress propose a constitutional amendment that would give the government the power to tax incomes without apportioning the burden among the states in line with population. Congress also levied a 1 percent tax on net corporate incomes of more than $5,000.

1913 – As the threat of war loomed, Wyoming became the 36^th and last state needed to ratify the 16th Amendment. The amendment stated, “Congress shall have the 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.” Later, Congress adopted a 1 percent tax on net personal income of more than $3,000 with a surtax of 6 percent on incomes of more than $500,000. It also repealed the 1909 corporate income tax. The first Form 1040 was introduced.

1918 – The Revenue Act of 1918 raised even greater sums for the World War I effort. It codified all existing tax laws and imposed a progressive income-tax rate structure of up to 77 percent.

1919 – The states ratified the 18th Amendment, barring the manufacture, sale or transport of intoxicating beverages. Congress passed the Volstead Act, which gave the Commissioner of Internal Revenue the primary responsibility for enforcement of Prohibition. Eleven years later, the Department of Justice assumed primary prohibition enforcement duties.

1931 – The IRS Intelligence Unit used an undercover agent to gather evidence against gangster Al Capone. Capone was convicted of tax evasion and sentenced to 11 years.

1933 – Prohibition repealed. IRS again assumed responsibility for alcohol taxation the following year and for administering the National Firearms Act. Later, tobacco tax enforcement was added.

1942 – The Revenue Act of 1942, hailed by President Roosevelt as “the greatest tax bill in American history,” passed Congress. It increased taxes and the number of Americans subject to the income tax. It also created deductions for medical and investment expenses.

1943 – Congress passed the Current Tax Payment Act, which required employers to withhold taxes from employees’ wages and remit them quarterly.

1944 – Congress passed the Individual Income Tax Act, which created the standard deductions on Form 1040.

1952 – President Truman proposed his Reorganization Plan No. 1, which replaced the patronage system at the IRS with a career civil service system. It also decentralized service to taxpayers and sought to restore public confidence in the agency.

1953 – President Eisenhower endorsed Truman’s reorganization plan and changed the name of the agency from the Bureau of Internal Revenue to the Internal Revenue Service.

1954 – The filing deadline for individual tax returns changed from March 15 to April 15.

1961 – The Computer Age began at IRS with the dedication of the National Computer Center at Martinsburg, W.Va.

1965 – IRS instituted its first toll-free telephone site.

1972 – The Alcohol, Tobacco and Firearms Division separated from the IRS to become the independent Bureau of Alcohol, Tobacco and Firearms.

1974 – Congress passed the Employee Retirement and Income Security Act, which gave regulatory responsibilities for employee benefit plans to the IRS.

1986 – Limited electronic filing began. President Reagan signed the Tax Reform Act, the most significant piece of tax legislation in 30 years. It contained 300 provisions and took three years to implement. The Act codified the federal tax laws for the third time since the Revenue Act of 1918.

1992 – Taxpayers who owed money were allowed to file returns electronically.

1998 – Congress passed the IRS Restructuring and Reform Act, which expanded taxpayer rights and called for reorganizing the agency into four operating divisions aligned according to taxpayer needs.

2000 – IRS enacted reforms, ending its geographic-based structure and instituting four major operating divisions: Wage and Investment, Small Business/Self-Employed, Large and Mid-Size Business and Tax Exempt and Government Entities. It was the most sweeping change at the IRS since the 1953 reorganization.

2001 – IRS administered a mid-year tax refund program to provide advance payments of a tax rate reduction.

2003 – IRS administered another mid-year refund program, this time providing an advance payment of an increase in the Child Tax Credit. Electronic filing reached a new high – 52.9 million tax returns, more than 40 percent of all individual returns.

Taxpayer Bill of Rights

The Taxpayer Bill of Rights is a cornerstone document that highlights the 10 fundamental rights taxpayers have when dealing with the Internal Revenue Service. The IRS wants every taxpayer to be aware of these rights in the event they need to work with the IRS on a personal tax matter. The IRS continues to publicly highlight these rights to taxpayers. The IRS also regularly reminds its employees about these rights. The IRS expects employees to understand and apply taxpayer rights throughout every encounter with taxpayers.

The Right to Be Informed

Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.

What you can expect:

Certain notices must include the amount (if any) of the tax, interest, and certain penalties you owe. It must explain why you owe these amounts.
When the IRS fully or partially disallows your claim for a refund, it must explain the specific reasons why.
Help with Understanding Your IRS Notice or Letter is available online at IRS.gov.
If the IRS proposes to assess tax against you, it must explain the process – from examination (audit) through collection – in its first letter. This letter should explain your options for a review by an independent Office of Appeals and how the Taxpayer Advocate Service may be able to help you.
If you enter a payment plan, known as an installment agreement, the IRS must send you an annual statement. This gives you a record of balances and payments.
You can access current and prior year IRS forms and publications at IRS.gov. You can also request order them by calling 800-829-3676.
IRS also uses several social media tools that provide helpful tax information to a broad audience. You can find IRS on Twitter, YouTube, LinkedIn and the IRS2Go free mobile app.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

By making this important publication available in multiple languages, the IRS hopes to increase the number of Americans who know and understand their rights under the tax law. The IRS has more tax information in other languages too. See the “Languages” menu at the bottom of any IRS.gov page.

The IRS also is committed to protecting taxpayers’ civil rights. The IRS will not tolerate discrimination based on age, color, disability, race, reprisal, national origin, English proficiency, religion, sex, sexual orientation or status as a parent. This includes any contact with IRS employees and the staff or volunteers at community sites.

If a taxpayer faces discrimination, they can send a written complaint to the IRS Civil Rights Division.

The Right to Quality Service

Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.

What you can expect:

You can find answers to most tax questions on IRS.gov. If you cannot find an answer to your tax issue on the IRS website or in published instructions, please contact the IRS for help. IRS representatives care about the quality of the service provided to you and are available to help. Here are some things to consider when contacting the IRS.
- The IRS provides a contact phone number on the top right corner of the notice or letter.
- IRS representatives should listen objectively and consider all relevant information.
- They should answer questions promptly, accurately and thoroughly.
Generally, you can speak to an employee’s supervisor if you have a problem.
When collecting tax, the IRS should treat you with courtesy. Generally, the IRS should only contact you between 8 a.m. and 9 p.m. The IRS should not contact you at your place of employment if the IRS knows or has reason to know that your employer does not allow such contacts. Be mindful of tax scams. Remember, the IRS does not make aggressive phone calls that threaten arrest or prison.
The IRS must include information about your right to get help from the Taxpayer Advocate Service in all statutory notices of deficiency. It should tell you how to contact TAS.
If you are eligible for Low Income Taxpayer Clinic (LITC) assistance, the IRS may provide information about your options for legal help.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

The Right to Pay No More than the Correct Amount of Tax

Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

What you can expect:

If you believe you have overpaid your taxes, you can file for a refund; however, there are specific time frames in which you must file your claim. For more information, see Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.
If you receive an IRS notice or bill and believe there is an error on it, write to the IRS office that sent it to you within the time frame given. You should provide photocopies of any records that may help correct the error. Also, you may call the number listed on your notice or bill for help. If you are correct, the IRS will make the necessary adjustment to your account and send you a corrected notice.
If you discover an error after you file your return, you may need to amend your return. You should file an amended return if there is an error or change in your filing status, income, deductions or credits. However, the IRS may automatically correct math errors on a return, and may accept returns with certain forms or schedules left out. In these cases, you do not need to amend your return. If you disagree with an adjustment the IRS made, you must request within 60 days that the IRS reverse the change. This timeline preserves your right to challenge the proposed adjustment in court, if needed, before paying it.
You may request that any amount owed be removed if it exceeds the correct amount due under the law, if the IRS has assessed it after the period allowed by law, or if the assessment was done in error or violation of the law.
You may request that the IRS remove any interest from your account if the IRS caused unreasonable errors or delays. For example, if the IRS delays issuing a statutory notice of deficiency because the assigned IRS employee was away for several months attending training, and interest accrues during this time, the IRS may abate the interest related to the delay.
You can submit an offer in compromise, asking the IRS to accept less than the full amount of your tax debt, if you believe you don’t owe all or part of the debt. Use Form 656-L, Offer in Compromise PDF.

If you enter a payment plan, known as an installment agreement, the IRS must send you an annual statement. The statement provides balances and a record of payments.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

The Right to Challenge the IRS’s Position and Be Heard

Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

What you can expect:

If the IRS notifies you that your tax return has a math or clerical error, you have 60 days to tell the IRS that you disagree. You should provide photocopies of any records that may help correct the error. In addition, you may call the number listed on your notice or bill for help. If the IRS agrees with your position, we will make the necessary adjustment to your account and send you a corrected notice.
If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). For more information about the United States Tax Court, see the Court’s taxpayer information page.
If you submit documentation or raise objections during a return examination (or audit), and the IRS does not agree with your position, it will issue you a statutory notice of deficiency. This notice will explain why the IRS is increasing your tax, which gives you the right to petition the U.S. Tax Court prior to paying the tax.
When the IRS notifies you of plans to levy your bank account or other property, you’ll generally have an opportunity to request a hearing before the Office of Appeals. Also, you’ll generally have an opportunity to appeal the proposed or actual filing of a notice of federal tax lien.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

The Right to Appeal an IRS Decision in an Independent Forum

Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.

What you can expect:

The IRS Commissioner must ensure that there is an independent IRS Office of Appeals. It’s an office that is separate from the IRS office that initially reviewed your case. Generally, Appeals will not discuss a case with the IRS to the extent that those communications appear to compromise the independence of Appeals.
Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree PDF, tells you how to appeal your tax case if you don’t agree with the IRS’s findings.
If the IRS has sent you a statutory notice of deficiency, which is a notice proposing additional tax, and you timely file a petition with the United States Tax Court, you may dispute the proposed adjustment in tax court before you have to pay the tax. For more information about the United States Tax Court, see the Court’s taxpayer information page.
Generally, if you fully paid the tax and the IRS denies your tax refund claim, or if the IRS takes no action on the claim within six months, then you may file a refund suit. You can file a suit in a United States District Court or the United States Court of Federal Claims. However, you generally have only two years to file a refund suit from the date the IRS mails you a notice that denies your claim.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

The Right to Finality

Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.

What you can expect:

The IRS generally has three years from the date you file your return to assess any additional tax for that tax year. There are some limited exceptions to this rule. For example, if you fail to file a return or you file a false or fraudulent return, the IRS has an unlimited amount of time to assess tax for that tax year.
The IRS generally has 10 years from the assessment date to collect unpaid taxes from you. The IRS can’t extend this 10-year period unless you agree to extend the period as part of an installment agreement to pay your tax debt or the IRS obtains a court judgment. However, there are some situations where the IRS may suspend the ten-year collection period and resume it later. The IRS may be able to do this if there’s a period when the IRS cannot collect, such as times of bankruptcy or a collection due process proceeding.
If you believe you have overpaid your taxes, you can file a refund claim asking for the money back. Generally, you must file a refund claim within three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later.
If the IRS sends you a notice proposing additional tax (statutory notice of deficiency), the notice must include the deadline for when you can file a petition with the Tax Court to challenge the amount proposed.
To timely challenge a statutory notice of deficiency in Tax Court, you must file your petition within 90 days of the date of the statutory notice (150 days if the taxpayer’s address on the notice is outside the United States or if the taxpayer is out of the country at the time the notice is mailed). If you do not timely file a petition, the IRS will assess the amount proposed in the statutory notice and you will receive a bill.
Generally, the IRS can only examine (audit) your tax return once for any given tax year. However, the IRS may reopen a previously examined return if the IRS finds it necessary. For example, if there is evidence of fraud, the IRS can reopen an exam.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

The Right to Privacy

Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.

What you can expect:

There are limits on the amount of wages that the IRS can levy (seize) to collect tax that you owe. A portion of your wages are protected from levy. The protected amount is the equivalent to the standard deduction, plus any deductions for personal exemptions.
The IRS can’t seize certain personal items, such as necessary schoolbooks, clothing, undelivered mail and certain amounts of furniture and household items. The IRS also can’t seize your primary home without court approval. It also must show there is no reasonable, alternative way to collect the tax debt from you.
If you submit an offer to settle your tax debt, and the offer relates only to how much you owe (known as a Doubt as to Liability Offer in Compromise), you do not need to submit any financial documentation.
The IRS should not seek intrusive and extraneous information about your lifestyle during an audit if there is no reasonable sign that you have unreported income.
During a Collection Due Process hearing, the Office of Appeals must consider whether the IRS’s proposed collection action balances the need for efficient tax collection with ensuring the IRS’s collection actions are no more intrusive to you than necessary.
More information about the IRS Privacy Policy is available online.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

The Right to Confidentiality

Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

What you can expect:

In general, the IRS may not disclose your tax information to third parties unless you give us permission. (Example: You request that we disclose information for a mortgage or student loan application.)
In general, the IRS can’t contact third parties such as your employer, neighbors or bank, to get information to adjust or collect the tax you owe unless it gives you reasonable notice in advance.
Generally, the same confidentiality protection that you have with an attorney also applies to certain communications with someone who is authorized to practice before the IRS, such as a certified public accountant or enrolled agent. Confidential communications are those that:
- Advise you on tax matters (other than tax return preparation) within the scope of the practitioner’s authority to practice before the IRS,
- Would be confidential between an attorney and you, and
- Relate to noncriminal tax matters before the IRS, or
- Relate to noncriminal tax proceedings brought in federal court by or against the United States.

If tax preparers knowingly or recklessly disclose or use your tax information for any reason other than for tax return preparation, they may face criminal fines and prison.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

The Right to Retain Representation

Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

What you can expect:

You may select a person, such as an attorney, certified public accountant or enrolled agent to represent you in an interview with the IRS. You do not have to attend with your representative unless the IRS formally summons you to appear.
In most situations, the IRS must suspend an interview if you request to consult with a representative, such as an attorney, CPA or enrolled agent.
You may have any attorney, CPA, enrolled agent, enrolled actuary, or any other person allowed to represent taxpayers before the IRS submit a written power of attorney to represent you. The person must not be disbarred or suspended from practice before the IRS.
If your income is below a certain level, you may ask a Low Income Taxpayer Clinic to represent you in your tax dispute before the IRS or a federal court. The services are free or for a minimal fee. Many LITCs offer services in languages other than English. Although LITCs get partial funding from the IRS, LITCs, their employees and their volunteers are independent of the IRS.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

The Right to a Fair and Just Tax System

Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

What you can expect:

If you can’t pay your tax debt in full and you meet certain conditions, you can get a payment plan with the IRS. You pay a set amount over time, generally in monthly payments. See the IRS Online Payment Agreement Application.
You can submit an offer in compromise asking the IRS to settle your tax debt for less than the full amount. You can do this if (1) you believe you do not owe all or part of the tax debt, (2) you are unable to pay the full amount within the time permitted by law to collect it, or (3) paying the full amount would cause financial hardship or would be unjust.
The IRS has published a list of national and local guidelines about the basic costs of living. You can use it when considering an offer to reduce your tax debt. The IRS won’t use these guidelines if they result in your not having enough money to pay your basic living expenses. The IRS would use your actual expenses instead.
The IRS cannot levy, or seize, all of your wages to collect your unpaid tax. A portion will be exempt from levy to allow you to pay basic living expenses.
You can receive help from the Taxpayer Advocate Service or from a Low Income Taxpayer Clinic.
The IRS can abate the unpaid portion of any tax or liability, and is specifically authorized to abate interest that is excessive or interest that was assessed erroneously, illegally, or after the statutory period of limitations on collection has expired.
The IRS can abate interest on an underpayment caused by unreasonable delay or error by an IRS employee if the taxpayer (or representative) did not contribute to the delay or error.

To find out more about the TBOR and what it means to you visit the Taxpayer Advocate Service’s website.

Anti-tax law evasion schemes – Law and arguments

The voluntary nature of the federal income tax system

Contention: The filing of a tax return is voluntary.

Some assert that they are not required to file federal tax returns because the filing of a tax return 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 “our 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 to determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax for them. The requirement to file an income tax return is not voluntary and is clearly set forth in Internal Revenue Code §§ 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 noncomplying individual to criminal penalties, including fines and imprisonment, as well as civil penalties. In United States v. Tedder, 787 F.2d 540, 542 (10 th 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.”

Relevant case law:

Helvering v. Mitchell, 303 U.S. 391, 399 (1938) – The U.S. Supreme Court stated, “[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. Tedder, 787 F.2d 540, 542 (10 th 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 (8 th 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 United States v. Drefke, 707 F.2d 978, 981 (8 th Cir. 1983), wherein the court described appellant’s argument as “an imaginative argument, but totally without arguable merit.”

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 return.

Johnson v. Commissioner, T.C. Memo. 1999-312, 78 T.C.M. (CCH) 468, 471 (1999) – 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.”

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.

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.) 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.

In discussing section 6151, the Eighth Circuit Court of Appeals stated “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. The sections of the Internal Revenue Code imposed a duty on Drefke to file tax returns and pay the . . . tax, a duty which he chose to ignore.” United States v. Drefke, 707 F.2d 978, 981 (8 th Cir. 1983).

Relevant case law:

United States v. Bressler, 772 F.2d 287, 291 (7 th Cir. 1985) – The court upheld Bressler’s conviction for tax evasion, noting, “[he] has refused to file income tax returns and pay the amounts due not because he misunderstands the law, but because he disagrees with it . . . . [O]ne who refuses to file income tax returns and pay the tax owing is subject to prosecution, even though the tax protester believes the laws requiring the filing of income tax returns and the payment of income tax are unconstitutional.”

Schiff v. United States, 919 F.2d 830, 833 (2d Cir. 1990), cert. denied, 501 U.S. 1238 (1991) – The court rejected Schiff’s arguments as meritless and upheld imposition of the civil fraud penalty, stating “[t]he frivolous nature of this appeal is perhaps best illustrated by our conclusion that Schiff is precisely the sort of taxpayer upon whom a fraud penalty for failure to pay income taxes should be imposed.”

Packard v. United States, 7 F. Supp. 2d 143, 145 (D. Conn. 1998) – The court dismissed Packard’s refund suit for recovery of penalties for failure to pay income tax and failure to pay estimated taxes where the taxpayer contested the obligation to pay taxes on religious grounds, noting that “the ability of the Government to function could be impaired if persons could refuse to pay taxes because they disagreed with the Government’s use of tax revenues.”

United States v. Gerads, 999 F.2d 1255, 1256 (8 th Cir. 1993) – The court stated that “[taxpayers’] claim that payment of federal income tax is voluntary clearly lacks substance” and imposed sanctions in the amount of $1,500 “for bringing this frivolous appeal based on discredited, tax-protestor arguments.”

Resources

http://www.irs.gov, “The meaning of income: Taxable income and gross income.”; http://www.irs.gov, “Why Do I Have to Pay Taxes?”; http://www.irs.gov, “Historical Highlights of the IRS.”; http://www.irs.gov, “Taxpayer Bill of Rights.”; http://www.irs.gov, “Anti-tax law evasion schemes – Law and arguments.”;

Common Sense and Ramblings In America

Do We Have To Pay Taxes?

The meaning of income: Taxable income and gross income

Contention: Wages, tips and other compensation received for personal services are not income.

The law:

Relevant case law:

Contention: Only foreign-source income is taxable.

The law:

Relevant case law:

Contention: Federal Reserve notes are not income.

The law:

Relevant case law:

The Right to Be Informed

The Right to Quality Service

The Right to Pay No More than the Correct Amount of Tax

The Right to Challenge the IRS’s Position and Be Heard

The Right to Appeal an IRS Decision in an Independent Forum

The Right to Finality

The Right to Privacy

The Right to Confidentiality

The Right to Retain Representation

The Right to a Fair and Just Tax System

The voluntary nature of the federal income tax system

Contention: The filing of a tax return is voluntary.

The law:

Relevant case law:

Contention: Payment of tax is voluntary.

The law:

Relevant case law:

Like this:

The meaning of income: Taxable income and gross income

Contention: Wages, tips and other compensation received for personal services are not income.

The law:

Relevant case law:

Contention: Only foreign-source income is taxable.

The law:

Relevant case law:

Contention: Federal Reserve notes are not income.

The law:

Relevant case law:

The Right to Be Informed

The Right to Quality Service

The Right to Pay No More than the Correct Amount of Tax

The Right to Challenge the IRS’s Position and Be Heard

The Right to Appeal an IRS Decision in an Independent Forum

The Right to Finality

The Right to Privacy

The Right to Confidentiality

The Right to Retain Representation

The Right to a Fair and Just Tax System

The voluntary nature of the federal income tax system

Contention: The filing of a tax return is voluntary.

The law:

Relevant case law:

Contention: Payment of tax is voluntary.

The law:

Relevant case law:

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