Originally published on Forbes.com Dec 20th, 2013
Irwin Schiff has taught that the federal income tax does not apply to most ordinary Americans. You can read how he arrives at that conclusion in The Federal Mafia – How It Illegally Imposes And Unlawfully Collects Income Taxes. Irwin Schiff has been banned from selling the book, but it is available used on Amazon and, even better, free as a pdf. Irwin’s son, Peter, endorses his father’s view and devotes a portion of The Real Crash: America’s Coming Bankruptcy – How To Save Yourself And Your Country to explaining it.
The theory is largely based on Supreme Court decisions within a couple of decades before or after the passage of the 16th Amendment. The most important ones are probably Merchants Loan & Trust Company v Smietanka and Brushaber v Union Pacific Railroad Company. ]If you are intrigued by Irwin Schiff’s arguments, I would encourage you to read those decisions in their entirety not just the snippets that are featured in the books If you end up agreeing with Irwin Schiff, there is something you should know before you fill out that 1040 and put all zeros on it.
It Is A Bad Idea
I heard from Andrew Schiff, Peter’s younger brother who works at Euro Pacific Capital, the investment firm Peter founded. He wanted to emphasize a point that his father raised in his appeal, but he agreed to answer a couple of my questions. The most important one was whether he and his brother recommend that people imitate their father. He said absolutely not.
“Don’t do it. It is a bad idea.” Andrew and Peter both think that their father’s interpretation is correct, with Peter being perhaps a bit more vehement about it. Nonetheless, they both recognize that the whole weight of the judiciary is on the other side. Many proponents of positions similar to Irwin Schiff’s neglect to provide this important caveat to those they preach to.
When I asked Joe Kristan for his thoughts on the matter he summed up the realist perspective pretty well
Oh, my.
I don’t care to go down the rabbit hole on the tax protester arguments. However convincing they may seem to adherents, they just don’t work. Given the choice between Irwin Schiff’s theories and all the federal judges that have ruled on these arguments – and they’ve been put before the courts countless times – a wise taxpayer goes with what the judges say. Every time. You can believe there is no income tax, but if the IRS agent, the federal judge, the federal marshals, and the Bureau of Prisons say otherwise, for all practical purposes there is an income tax.
It can get a bit expensive to make what are considered frivolous arguments in Tax Court as they can ding you up to $25,000 for making them, although they generally settle for $5,000. In 2011, in the case of Scott Wnuck the Tax Court gave a fairly extensive explanation as to why it no longer answers arguments that have been deemed frivolous
If one is genuinely seeking the truth, if he focuses on what is relevant, and if he confines himself to good sense and logic, then the number of serious arguments he can make on a given point is limited. However, if one is already committed to a position regardless of its truth, if he is willing to say anything, if he is willing to ignore relevance, good sense, and logic, and if he is simply looking for subjects and predicates to put together into sentences in ostensible support of a given point, then the number of frivolous arguments that he can make on that point is effectively limitless. When each frivolous argument is answered, there is always another, as long as there are words to be uttered. Such arguments are without number…..
This Court and other courts have addressed and rejected many of the recurring frivolous anti-tax arguments, including (as is especially pertinent here) the general argument that wages are not subject to the income tax ….
The substantial effort expended to produce a Tax Court opinion is well spent, even in a small case and even where the outcome is clear, if the contentions being adjudicated are made seriously and in good faith. Taxpayers with disputes both large and small need to know that their good-faith disagreements with the tax collector will get serious attention from this Court.
However, the peddlers of frivolous anti-tax positions and their clients who file petitions advancing those positions should not be allowed to divert and drain away resources that ought to be devoted to bona fide disputes. If frivolous positions were to bog down the operations of this Court, the resulting disadvantage would accrue not mainly to the Court itself but rather to litigants with legitimate issues and to the public generally. To responsibly manage its resources, the Court should therefore not address every frivolous argument.
The only reason to advance arguments that have been deemed frivolous in court would be in the hope that if enough people do it, the system will grind to a halt. If that is your plan, have at it, but you know that you are not going to win in court already.
More On Irwin Schiff’s Case
Andrew Schiff did not call me to offer advice to others. He specifically wanted to point out something about his father’s trial that his father thinks is very significant. Apparently what Irwin Schiff had done was file a return with zeros and referred to the Supreme Court decisions he believed were relevant. Irwin wanted to call the agents who had worked his case and asked them specifically what was wrong with the various lines on his return.
He believes that this would have helped show the jury his sincerity. I’m not sure how strong a point that is, but that is what is currently on his mind. I should mention here that Jack Townsend , a preeminent authority on criminal tax matters, has stated that the Ninth Circuit may have been wrong to not cut Irwin Schiff more slack because of his bipolar disorder.
On the other side of the ledger, so to speak, I finally tracked down the Journal of Taxation article that Irwin had not been allowed to introduce as evidence at his trial. The article was Is Affirmative Misconduct Necessary For Tax Evasion? in the February 1987 issue of the Journal of Taxation. The author was Elliot Silverman The article discussed a Second Circuit appeal of Irwin Schiff’s previous conviction.
I contacted Mr. Silverman and he got back to me. He does not understand how his article would have helped Irwin Schiff in his defense. Mr. Silverman worte
Yes, I did write an article in 1987 arguing that, in one of Schiff’s prior criminal cases, he may have been guilty only of a misdemeanor rather than the felony he was convicted of. (The article also said that the court could be excused for getting that issue wrong because Schiff didn’t raise it in his initial appeal.) I can’t imagine how that article would have been relevant to Schiff’s later prosecution. The article certainly didn’t say that Schiff’s views on the tax laws were correct; in fact, it pointed out that his view that payment of income taxes is voluntary was incorrect and had been rejected many times by the courts.
Irwin, bless his heart, has cited me in some of his subsequent books as saying that he is right and the courts are wrong. Sigh.
More On The “Invalid Income Tax”
There are numerous other theories about the invalidity of the income tax. Dan Evans has collected quite a few of them and includes explanations of why he believes they do not work. I asked him if he thought that he had ever convinced anybody who had been bitten by the “income tax is illegal bug”. He wrote
As far as I can tell, once you’ve drunk the Kool-aid, it’s pretty much over. Getting back to reality is rare.
I asked him what motivated his project.
In the 1990s, I started hanging out in usenet, mainly in misc.taxes. I thought it would be interesting to discuss tax issues, perhaps help people with tax questions. And I started running into people claiming that the income tax was unconstitutional, or misapplied, or something. They seemed so sure of themselves, and they cited Supreme Court decisions (such as Pollock and Brushaber), so I thought I needed to look into it.
Well, when I read the cases they cited, I found that the cases didn’t say what they claimed. Quite the opposite, in fact. The court decisions all affirmed the power of Congress, and the sweep of the income tax laws. (I still have a copy of my first posting somewhere.)So I thought it was a misunderstanding, and I could explain the mistake, and then they would realize they were wrong. Wrong. They just moved on to a different rationale and a different fallacy.
So I kept researching different fallacies and trying to refute them. And after awhile I realized I was repeating myself, and so I started keeping a kind of log of frequently cited cases and statutes and regulations.And then at some point I put it together as an online FAQ, so that other people didn’t need to repeat my research.
I explain it as a kind of hobby.
I had the same hobby myself for a while, although I did not take it as far.
At any rate, Irwin Schiff’s strongest supporters are no doubt his sons. Peter Schiff told me has spent hundreds of thousands of non-deductible dollars defending his father. You may agree with Irwin Schiff’s view and you may admire Irwin Schiff. Even his strongest supporters, however, will not encourage you to follow in Irwin Schiff’s footsteps.
You can follow me on twitter @peterreillycpa.
Note
Briefly, after posting this, I heard from Andrew Schiff who indicated that I may not have made his view clear enough. He stated it as follows.
Andrew Schiff does not recommend that that people imitate his father’s attempts to challenge the government directly in court. But he encourages people to read his views and evaluate their validity.
I am pretty much in agreement with that sentiment. I would add the proviso that if you are really persuaded by Irwin Schiff’s arguments, you should read the full the documents that he cites. Many of Irwin’s critics will say that taking things out of context is probably one of the main problems with his arguments.