Originally published on Forbes.com Jan 22nd, 2014
I recently wrote that Kent Hovind probably does not quite fit the definition of a tax protester in the classic Irwin Schiff mode. Hovind was claiming that he was exempt because he was a minister and that Creation Science Evangelism should have been recognized as an entity separate from him. If Hovind were to prevail, which is extremely unlikely to say the least, the whole system would not come crashing down. Not so with Thomas Robert Young who was recently before the Fifth Circuit appealing a Tax Court decision.
The Tax Court had so little use for Mr. Young’s argument that they hit him with a $25,000 penalty for pursuing the argument after he was warned that it was frivolous. The Fifth Circuit sanctioned Mr. Young an additional $8,000.
On appeal, Young, acting pro se, argues that the income tax is an unconstitutional direct tax and that the Internal Revenue Code does not make an individual liable for the payment of federal income tax. These arguments are meritless. In regards to the income tax, suffice it to say, “t this late date, it seems incredible that we would again be required to hold that the Constitution, as amended, empowers the Congress to levy an income tax against any source of income, without the need to apportion the tax equally among the states, or to classify it as an excise tax applicable to specific categories of activities.”
Well, since Mr. Young ended up spending $33,000 in order to get his arguments heard by the Court, I thought I could spend $3.00 to share them with you. Here is the link to Mr. Young’s appeal which I downloaded from Pacer (That’s what cost me the three bucks).
Those Rebels In The Tax Court
Mr. Young starts out strong writing:
…while the issues raised in this appeal have been authoritatively decided by the Supreme Court, the US Tax Court is acting in clear rebellion against those controlling decisions
Lack Of Magic Words
The issue that he devotes the most attention to is:
Do Sections 1, 61 and 7701(a)(1) make a person liable for the payment of the income tax imposed in Subtitle A of Title 26?
Mr. Young argues that
..the federal personal income tax is known to be a tax where the liability for the payment is carefully placed by the statutes, under IRC 1461 & 3403, only at the doorstep of the federal income tax collectors,and is never made the legal responsibility of the general population to pay by the statutes, just as a sales tax liability for payment of the sales tax at the doorstop of the stores conducting the sales.
I found that comment about the sales tax really intriguing, because every state I know of that has a sales tax, backs it up with a use tax, so that in the event that it is not collected on sale, the person who bought the property still remains liable for it. That is neither here nor there, though, I guess.
The heart of Mr. Thomas’s argument is that Code Sections 1, 61 and 7701(a)(1) never use the word “liable” or “liability” while Code Section 1461 which discusses withheld taxes does. Now, not all income taxes are withheld so if Mr. Thomas is correct Congress has imposed a tax without making anybody liable for it. It is a sort of “You didn’t say ‘Simon says'” argument. It is kind of clever and I guess it would be really embarrassing to the drafters of the Internal Revenue Code if it actually worked, but the courts have consistently ruled that it does not.
There has been a raging debate about this issue in the comments section in a post that discusses Irwin Schiff. Dan Evans, who has made quite a study of protester arguments wrote this
The Internal Revenue Code doesn’t need to use the word “liable” or “liability” to impose a tax. The Constitution doesn’t require the use of the word “liable” and no court decision requires the use of that particular word. You don’t get to self-select which words Congress has to use in writing a statute.
It is kind of difficult to follow, but Mr. Thomas backs up the “not liable” argument with a constitutional analysis, which if not drawn from the works of Irwin Schiff, is inspired by similar sources. The best summary of what is wrong with Schiff’s arguments can be found in the words of his own attorneys who were trying to argue that he was not being willful in not paying income tax.
even though these cases, properly understood, do not support Mr. Schiff’s professed beliefs, they do contain language which, if honestly misconstrued and read out of context, could lead someone without legal training to believe that taxable income is limited to corporate profits
I’m thinking of adding “honestly misconstrued” to my oxymoron collection along with “passive activities”.
Don’t Try This At Home
The “not liable” argument appears to have a very powerful hold on the imagination of alternative tax theorists. You kind of almost have to admire someone like Mr. Thomas who racks up the sanctions making it. It might actually not be such a bad thing if the Supremes would take a couple of these cases and clear the air with a couple of 9-0 decisions. In the meantime, even if you are convinced of the validity of these arguments you should recognize that there is no point in raising them with the IRS or in the Tax Court.
You can follow me on twitter @peterreillycpa.
Afternote
I am not certain if it was Irwin Schiff that originated these types of arguments, but he is certainly the most noted proponent. You can read Schiff’s Federal Mafia for free now since he has been enjoined from selling it if you want a more elaborate treatment.