Home -- Site Map -- Search

 

 

Readers of 'Cracking the Code- The Fascinating Truth About Taxation In America' have taken control of their own resources, in accordance with, and respect for, the law. A few of these good American men and women are generous enough to share their victories in upholding the law, for the edification and inspiration of everyone. At the moment the shared refund checks, closing notices, and so forth total

DON'T YOU NEED TO KNOW THE TRUTH, TOO??!!

THIS WEEK'S TAX TIP

A helpful summary of certain core "income" tax dynamics, and the occasional resource for Warriors.

Everything here other than as attributed is just how one man reads the law. No one should take this as personal advice, and everyone is responsible for his or her own decisions and conclusions.

 

What is the difference between a "taxpayer" and a "non-taxpayer"?

 

ON THE FIRST PAGE OF CtC I INCLUDE AN EXCERPT from the ruling in Economy Plumbing and Heating v. United States in which the court distinguishes between "taxpayers" and "non-taxpayers":

“The revenue laws are a code or system in regulation of tax assessment and collection. They relate to taxpayers, and not to nontaxpayers. The latter are without their scope.”  United States Court of Claims, Economy Plumbing and Heating v. United States, 470 F.2d 585, at 589 (1972)

My reason for this inclusion is to awaken people to the fact that there IS a distinction; that being an American doesn't automatically amount to being a "taxpayer". I discuss this point at length in the chapter, 'About 1040s And Claiming Refunds'

 

But there is a persistent misunderstanding on the subject of "taxpayer" v. "non-taxpayer" in deep pockets of the tax-honesty community where CtC is not read but is assumed to be understood, or is whispered against by trolls and mushroom farmers. Therefore, some words about the subject here online are worthwhile.

 

So, what exactly does the distinction mean? Does it mean that there are two different classes of persons, like the serfs and the aristocrats in a feudal system? Not at all. "Taxpayer" status attaches through-- and only through-- certain distinguished activities, not the status of the person. It applies to the person insofar as those qualified activities are conducted and insofar as the ramifications of those activities play out in the context of the tax. It does not apply to that person in any other way.

 

"Taxpayer" status is compartmentalized in any person's affairs overall. It is inherently and always temporary, conditional and limited.

 

Do you receive Social Security payments? To that extent, and in that regard-- and to that extent only, and in that regard only-- you are a "taxpayer" (although you may also engage in other taxable activities and have "taxpayer" status attach to, and arise in connection with, those other activities, also).

 

Are you merely carrying on economic activities that are common matters of right, involving no federal privilege, such as simply trading your labor in the market, conducting purely private-sector, unprivileged business activities, and so on? Insofar as those activities are concerned, and all activities involving no gains or receipts of any kind, you are a "non-taxpayer". If you begin receiving Social Security payments, you remain a "non-taxpayer" in every other respect, but in regard to your SS benefits, you are a "taxpayer", and in respect to those benefits (but only in that respect), the revenue laws relate to you.

 

Are you a postal worker in the daytime? To the extent that you engage in that activity, and are thus subject to the laws regarding the reporting and taxpaying obligations associated with such federally-privileged activities, you are a "taxpayer". The night job you hold down at the local 7-Eleven, and, indeed, all the rest of your non-privileged activities are "non-taxpayer" activities, and outside the scope of those revenue laws.

 

The difference between "taxpayers" and "non-taxpayers" is not complex. But understanding it clearly is important, because a huge morass of "tax honesty movement" nonsense lurks all over the internet and in a great deal of laboriously-created books and other packages of material based on a misunderstanding of the subject. From that misunderstanding come dangerous errors imagining that the income tax only applies to foreigners, or resident aliens, or government workers, or corporations, or "14th Amendment citizens", or "U.S. citizens" and so on.

 

By holding these compound misunderstandings in the forefront of their minds, folks find it very difficult to achieve and retain a clear understanding of what "income" is, and how it is dealt with in the law.  Don't fall prey to these errors yourself, and do help others steer clear of them or find their way out of the morass and into the fresh air and clear light of true understanding of the liberating truth about the tax.

 

For a series of detailed discussions of many of the various misunderstandings and mistakes leading to, or from, errors concerning the meaning of "taxpayer" and "non-taxpayer", see this page.

 

***

 

How Stupid Do They Think Americans Are?

 

Pretty damn stupid, it would appear...

 

When sending me his recent 2011 federal victory to share, a stalwart CtC warrior mentioned that about a year after the feds had returned all his property withheld in 2009 a few years back, he received something from the IRS asking him to send back what they had a year earlier admitted belonged to him! The contempt this agency has for the intelligence of Americans is breath-taking! (Well, nauseating is really the better word...)

 

While there may be exceptions under some circumstances I suppose, it seems clear that in general, this sort of thing is a ploy based on a tax-agency hope that a target won't understand that its lame requests are a combination of laughable and impertinent (being couched as much as possible in the tone of a demand, but when all is said and done, really being just a whine and a beg). More importantly, the agency appears to be also hoping that the target of its ploy will overlook the fact that anyone acceding to such a request would thereby be declaring himself to have not validly (or maybe even honestly) claimed the return of the property in the first place, and/or would be endorsing the agency's own not-quite-actually-ever-made claim.

 

The agency's own return of the property was a concrete acknowledgement of the legitimacy of the target's claim, and a concrete admission that the agency had no basis for alleging a competing claim to the money on behalf of the government. Make no mistake, contrary to self-serving myths promoted by the IRS and its fellow-travelers to keep you from grasping the evidentiary significance of CtC-educated victories, all filings claiming refunds (not just CtC-educated filings) are challenged by default. In particular, ALL CtC-educated filings-- the vast majority of which show and claim a refund of withholdings-- ALL withholdings-- while showing no "income" at all-- have ALWAYS been scrutinized before being processed.

 

If the agency HAD a defensible basis for the denial of the target's claim and the assertion of a competing claim (two things that are inseparably intertwined-- the money has to belong to SOMEONE, and the government can only deny the claimant on the grounds that it has its own claim), it would never have sent out that check or issued the credit. Instead it would have refused the target's claim and left it to him to sue, prepared to defend its own claim in court.

 

By the same token, a target of this transparent ploy sending the money back in response to a request would be making the identical concession, but along with the dangerous implication that his first claim (by way of a sworn tax form, and thus with legal consequences potentially invoked) was in bad faith. Needless to say, an agency's request doesn't have anyone's signature under penalties of perjury, making it an actual, legally-meaningful assertion of a government claim-- something that is required by law when there is an actual agency dispute of an original claim:

 

"26 CFR 301.6020-1(b) Execution of returns- (1) In general. If any person... ...makes, willfully or otherwise, a false, fraudulent or frivolous return, the Commissioner or other authorized Internal Revenue Officer employee shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise."
 

(2) Form of the return. A document (or set of documents) signed by the Commissioner or other authorized Internal Revenue Officer or employee shall be a return for a person described in paragraph (b)(1) of this section if the document (or set of documents) identifies the taxpayer by name and taxpayer identification number, contains sufficient information from which to compute the taxpayer's tax liability, and purports to be a return. (Emphasis added.)

 

"26 USC 6065 Verification of returns

Except as otherwise provided by the Secretary, any return, declaration, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under the penalties of perjury."
 

They think WE'RE that stupid, but no one at the IRS is so stupid as to make its bogus assertions under penalties of perjury...

 

(Further, it should be noted that all scary bluster and bs by the agency notwithstanding, the statutes also say that the government's mechanism for "reclaiming" a refund is a suit under 26 USC § 7405. That's the provision under which the United States is authorized to attempt to recover what it alleges to have been an erroneously-made refund, even one it alleges to have been induced by fraud or misrepresentation of material fact.

26 USC 7405

(a) Refunds after limitation period

Any portion of a tax imposed by this title, refund of which is erroneously made, within the meaning of section 6514 [this refers to a refund claimed past the SOL for such a claim], may be recovered by civil action brought in the name of the United States.

(b) Refunds otherwise erroneous

Any portion of a tax imposed by this title which has been erroneously refunded (if such refund would not be considered as erroneous under section 6514) may be recovered by civil action brought in the name of the United States.

(c) Interest

For provision relating to interest on erroneous refunds, see section 6602.

(d) Periods of limitation

For periods of limitations on actions under this section, see section 6532 (b) [this provides for a 2-year SOL in which the US can bring an action, or 5 years if the refund is based on fraud or misrepresentation of material fact].

With one telling exception, this never happens in regard to CtC-educated refunds.)

 

NOTE: It must be kept in mind that there are only two choices-- a claim is either valid and must be honored, or it is disputed because it is deemed false, fraudulent or frivolous. If the latter, the agency is required to produce and sign a 6020(b) return. Absent that, no legally-meaningful dispute exists; the original claim HAS been acknowledged as valid and must be honored; and any "notice" asking for (or even "demanding") the return of the property is so much hot air. The one variable would be a math error in computing the tax after applying the correct rate to the declared amount of "income" less appropriate deductions (if any), which would take the form of a "deficiency" proceeding, but this could not involve any dispute of the amount of "income" declared as the starting point for the computations.

 

NOTE II: The language in (b)(1) above actually reads: "If any person required to make a return..." I left the "required to make a return" phrase out and saved it for this note because some folks get hung up on this qualifying language. They should not; the "math" here is straightforward:

 

If someone IS "required", it is because he or she has had more than the exemption amount of "income", really IS required to make a return, and gets the benefit of the provisions above (any actual dispute obliges the agency to produce and sign a 6020(b) return, and in the absence of that, the original return is acknowledged as valid). If a person ISN'T "required", it is because he or she has NOT had more than the exemption amount of "income" and the provisions above DON'T apply-- but at the same time his or her return claiming all withheld or paid-in amounts is legitimate and valid (in the sense being discussed here). If the tax agency wants to say that the person DID have more than the exemption amount of "income", and dispute his or her claim, it thereby calls upon itself the 6020(b) provisions and again must make its dispute by way of a signed and sworn return.

 

In short, the 6020(b) provisions have the same implications either way: they apply because the claimant IS a "person required", or DON'T apply-- but only because the person cannot have owed any tax, and his or her claim is valid on that basis. Either way, if a signed and sworn 6020(b)return hasn't been produced, no dispute of the original claim has been raised, and that original claim stands acknowledged as valid.

 

*****

 

Is this newsletter of any value to you? If so, please consider a donation to help keep it available.

Donations can be sent to:

Doreen Hendrickson

232 Oriole St.

Commerce Twp., MI  48382

 

*****

 

A "Frivolous" Notion

Which some will find of interest...

 

Also, some will benefit from

Parsing "Frivolous" Fictions

 

By the way, since the whole purpose behind bogus "frivolous return" assertions is to furnish a pretext for treating a claimant as having stood silent, the following wise words come to mind:

 

"The attempt to silence a man is the greatest honor you can bestow on him.
It means that you recognize his superiority to yourself."

-Joseph Sobran

 

*****

 

"Information Returns" Are NEVER Sufficient Evidence Of "Income" Payments

"Defendants are correct that the 1099s, on their own, do not create tax liability. Form 1099 is an informational return, filed by a third party to the relationship between the IRS and the taxpayer, which reports income as that third party believes it to be. The Internal Revenue Code makes it clear that a Form 1099 is not the final word on what a taxpayer's taxable income is. As provided in 26 U.S.C. § 6201(d):

In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item reported on an information return ... by a third party ... the [IRS] shall bear have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return.

The Tax Court has held that a Form 1099 is insufficient, on its own, to establish a taxpayer's taxable income. See Estate of Gryder v. Commissioner,T.C. Memo. 1993-141, 1993 WL 97427, 65 T.C.M. (CCH) 2298, T.C.M. (RIA) 93,141 (1993), citing Portillo v. Commissioner,932 F.2d 1128 (5th Cir.1991). See also Portillo v. Commissioner,988 F.2d 27, 29 (5th Cir. 1993) (a Form 1099 is "insufficient to form a rational foundation for the tax assessment against the [taxpayers in this case]."). Thus, while a Form 1099 can serve as the basis for the inception of an IRS investigation, it cannot and does not, on its own, create tax liability or establish how much income the taxpayer actually received."

Daines v. Alcatel, S.A., 105 F.Supp.2d 1153, 1155 E.D. Washington, 2000

 

*****

 

About Statutes, Regulations And Misunderstandings

 

There has long been a widespread misunderstanding about the significance of regulations within the "tax honesty" community.  Due in large part to the bad habit of relying on circulated excerpts of judicial rulings without context, the notion has taken root that no statute has force and effect unless it is implemented with related regulations.  The typical "authority" cited for this proposition are the following excerpts from California Banker's Assoc. v. Shulz (one of which is an apparent paraphrase from the actual language, but is close enough to be allowed to stand uncorrected for purposes of this discussion):

 

"...the Act's civil and criminal penalties attach only upon violation of the regulation promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone...

 

“The reporting act is not self-executing; it can impose no duties until implementing regulations have been promulgated."  Calif. Bankers Assoc. v. Shultz, 416 U.S. 25, 44, 39 L.Ed. 2d 812, 94 S.Ct 1494

What is misunderstood about these excerpts is that the ruling deals with a statute which specifically calls for a regulatory structure for its implementation.  That is, the "Act" (in this case, The Bank Secrecy Act of 1970), in its own language, provides that "the Secretary" shall promulgate regulations defining certain terms and otherwise carrying out tasks specified by Congress as the basis on which penalties provided for in the act can be imposed.  It is only for this reason that the Supreme Court says what it does in the excerpts above.

 

If a statute DOES NOT call for regulations for its implementation, then they are not necessary to that implementation, or enforcement of the statute's provisions.  See the language in the following two cases for some illustration, particularly noting the portions I have emphasized:

"An administrative regulation, of course, is not a "statute." While in practical effect regulations may be called "little laws,". . .  they are at most but offspring of statutes. Congress alone may pass a statute,. . . . Once promulgated, these regulations, called for by the statute itself, have the force of law, and violations thereof incur criminal prosecutions, just as if all the details had been incorporated into the congressional language. The result is that neither the statute nor the regulations are complete without the other, and only together do they have any force.  In effect, therefore, the construction of one necessarily involves the construction of the other." U.S. v. Mersky, 361 U.S. 431 (1960)

"In the absence of any better test, we give effect to the generally recognized rule that Regulations issued by the Secretary of the Treasury, pursuant to statutory authority, and when necessary to make a statute effective, although not a statute, may have the force of law. Fawcus Machine Co. v. United States, 282 U.S. 375, 51 S.Ct. 144, 76 L.Ed. 397; Commissioner of Internal Revenue v. South Texas Lumber Co., 333 U.S. 496, 601, 68 S.Ct. 695, 92 L.Ed. 831." U.S. v. Fisher, 353 F.2d 396 (5th Cir. 1965)

The unfortunate consequence of misunderstandings related to this subject is a huge volume of material constantly flooding the community about this or that tax statute lacking associated regulations and therefore, it is breathlessly reported, "It's a fraud!" or, "It has no application!!"  (This is not to say that there are no "empty" statutes, though; as noted in '"W" Is For Weapon' in CtC, there are statutes which DO call for regulatory implementation but for which no regulations have been promulgated.  In these cases, "...the Act's civil and criminal penalties attach only upon violation of the regulation promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone...", just as the Supremes observe in 'California Bankers'.)  Such material inevitably distracts the recipient, and often leads to other misunderstandings, as well as the wasting of precious time and energy.

 

Worse, the proliferation of such misunderstandings "poison the well" in that they keep those not aware of the "income" tax scheme from undertaking the study needed to become aware, and to then lend their energy to the cause of restoring the rule of law in this critically-important area.  Such folks, coming across errant assertions such as this, will turn away from their study of the tax entirely.

 

If everyone simply sticks to what will be found in CtC, WGRaM? and on this site (exclusive of the forum) this sort of thing won't be a problem, of course.  Thus, when getting those breathless emails, I suggest a demeanor such as is laid out in the state and national forum guidelines:

 

I will say as plainly as possible what I have by necessity said many times before, but usually with more circumspection (and can't seem to say often enough): Any and all notions concerning the nature of the "income" tax-- how it is applied, why it can be thus applied, how it interfaces with the legal system and so forth-- which are not taught in CtC or on this site (exclusive of forum posts, of course) are just inherently wrong or are entirely irrelevant to the tax.  They are raised or promoted either in ignorance or for ill purposes.

 

Such notions should not be debated or discussed-- doing either is a waste of valuable time and energy.  There is one kind of simple response that is appropriate when presented with "alternative" or "supplemental" notions of this sort:

"You didn't find that in CtC or on losthorizons.com, so put it out of your mind.  Here is what is actually true about that aspect of the tax..."

or,

"That notion has already been shown to be erroneous at [the relevant "misunderstandings" page]..."

or,

"Since there is no actual (or unambiguous) evidence demonstrating the accuracy of the contrary or disputatious notion you advocate, while on the other hand a huge, constantly-growing body of every conceivable kind of evidence-- including even the nuanced character of governmental efforts to discourage the CtC-educated-- unmistakably demonstrates the complete accuracy of CtC, why are you bringing this up?  What is your real agenda?"

If this gentle approach isn't effective, direct your correspondent to 'The Deniers Page'.

 

Keep in mind that those who wish to keep the truth spinning its wheels, and making as little forward progress as possible, routinely and systematically exploit two basic human foibles:

 

 1. The natural tendency of those whose education is incomplete to mistake sporadic, creative (and carefully indirect)-- but well publicized-- tax agency resistance to a few educated filings as meaning that there is some piece of the puzzle missing (imagining that otherwise, the generations-old scam that even now continues to successfully bamboozle 180 million Americans 24/7 would have just thrown in the towel and abandoned the field, rather than continue to cast about for some silver-bullet of its own that will frighten or confuse students of the truth into retreat or disarray); and

 

2. The equally natural tendency of everyone to be attracted to notions that are presented as, or appear to be, resistance-risk-reducing tricks or short-cuts.

 

Thus, there is a constant effort to seed the "tax honesty" community (and CtC forums directly) with notions designed to invoke both of these unfortunate tendencies in order to distract participants from their primary purposes of:

  • 3. The perfecting of each other's accurate educations-- not promoting "alternative" or "supplemental" educations, but by referring the ignorant or misled to relevant material in CtC or on losthorizons.com (exclusive of forum pages);

  • 2.  Mutual encouragement in standing up and acting; and, most importantly,

  • 1. Planning and executing ever-more effective means of spreading of the actual truth about the tax.

(Your help in the broader community is also much appreciated, and very important in regard to success in seeing the "income" tax scheme broadly reined-in. See www.losthorizons.com/Newsletter/Foreword.htm for more on this.)

 

See this page for a little more on the subject of statutes, regulations and related areas; and here for analyses of many other misunderstandings constantly injected and re-injected into the "tax honesty" community.

 

*****

 

The Basics Of Educated Filing

 

Educated filing involves three simple considerations:

1.) What is true about one's earnings/activities;

2.) What has been said about one's earnings/activities by others;

3.) What testimony-- either of agreement or rebuttal-- is appropriate to bring the things of #2 into harmony with #1 (or to acknowledge that they already are in such harmony).

That's basically it.  Everything else, after the elements of #3 have been identified, is just following simple instructions for putting those elements onto specified lines of various forms and sometimes doing a little math where indicated.

 

For a little more on this, see:

 

A Thumbnail Sketch Of The "Income" Tax Reporting And Determination Process

A helpful summary of certain core "income" tax dynamics

 

and for a lot more, see 'About 1040s And Claiming Refunds' in CtC.

 

*****

 

More On §§ 6021(d) And 7491 "Additional Evidence" Requirements

 

I recently saw a story on the net about someone who (according to the story) was in a Tax Court proceeding recently in which the government produced the creators of "information returns" on which it was relying as witnesses.  These witnesses affirmed that they had paid the amounts reported, and had filled out the forms.  An interesting ploy, but nothing could be more irrelevant and insufficient...  

26 USC § 6201 -Assessment authority

(d) Required reasonable verification of information returns

In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return filed with the Secretary under subpart B or C of part III of subchapter A of chapter 61 by a third party and the taxpayer has fully cooperated with the Secretary (including providing, within a reasonable period of time, access to and inspection of all witnesses, information, and documents within the control of the taxpayer as reasonably requested by the Secretary), the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return.

26 USC § 7491 -Burden of proof: 

(a) Burden shifts where taxpayer produces credible evidence

(1) General rule

If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B, the Secretary shall have the burden of proof with respect to such issue.

Understand that the additional "reasonable and probative information" that the government must produce in response to a dispute with the assertions on an "information return", or its carrying its burden of proof as to such assertions, CAN'T simply be a recitation or transcription of the same information that appears on the IR.  Neither that same information transcribed onto another form (such as an IRS "account transcript") or that same information recited by a live witness, even if that live witness is the person who filled out the "information return" in the first place, meets the statutory standards.

 

Such a recitation or transcription ISN'T additional information, nor is it proof of the disputed assertion.  Such a recitation or transcription is merely the same, original information that the statutes say must be ADDED TO and/or PROVEN, not just repeated.  The statutes don't say that the Secretary shall "prove that such assertions were made", they say that what is asserted must be proven, and by other evidence.

 

Understand further that per 26 U.S.C. §§ 6041 and 6051(a), what is to be reported on a Form W-2 or 1099 is the amount paid as remuneration for services rendered as an “employee” as defined in 26 USC § 3401(c) (through the definition of “wages” in 26 USC § 3401(a)) and/or the amount paid for services rendered in “employment” as defined in 26 USC § 3121(b) (through the definition of “wages” in 26 USC § 3121(a)), or the amount paid for activities in the course of a “trade or business” as defined at 26 U.S.C. § 7701(a)(26).

 

What must be substantiated under §§ 6201(d) and 7491, therefore, is not merely the accuracy of the report in regard to ‘the amount of dollars paid’, but the accuracy of the report in regard to ‘the amount of dollars paid that meet the statutory specifications for reporting with these forms’.  Remember, these forms specifically and deliberately DO NOT ask that MONEY PAID be reported.  Instead, they ask only for the report of payments meeting the statutory specifications.

 

*****

 

A New Resource:

A CtC "Points and Authorities" Guide

shared with the community by Warrior Steven Robert Jones

 

Download the guide here.

 

*****

 

Getting Your Ducks In A Row

When you're in a shooting match where hits have been hard to come by, the problem may be that you've been dealing with a moving target...  Here's how you can stake the other side down.

 

Two years ago, CtC Warrior Patrick Mooney went into tax court suing to recover "frivolous penalties" held back from otherwise complete refunds made to him by the federal government for several years-- one of which "penalized" years was another for which he had already gotten a complete refund.  He had prepared as best he could, having never been in the court before (and operating on the expectation that the judge would know and apply the law).  After a ten-minute "trial", Patrick was told that he "failed to prosecute his case" (with no further explanation forthcoming), and his suit was dismissed.

 

On Monday, March 15, Patrick went back. The proceedings were MUCH more extended, Patrick was treated with respect, and the court has yet to issue a decision.  The difference?  For one thing, Patrick is a two-years-more-thoroughly-CtC-educated litigant and he now had some familiarity with procedures in the court.  Consequently, Patrick was able to able to handle things more effectively, generally.

 

But mostly, it was that Patrick went in with a powerful weapon.  That weapon was the first thing deployed upon the opening of proceedings, was largely read into the record immediately, and was accepted as a whole without objection by either of Patrick's adversaries in the courtroom.

 

I'm speaking of a well-crafted Request for Judicial Notice-- a prepared body of relevant points of law and fact that establishes the parameters within which the court must act.  Patrick's notice is largely a compilation of points published in CtC and/or posted on this page over the last few years (and now available in 'Was Grandpa Really a Moron?' along with background information and analysis).  See it below, and enjoy.

 

REQUEST TO TAKE JUDICIAL NOTICE

 

 

Set a brushfire-- E-mail this week's newsletter to a friend

 

*****

 

It's Not A Tax On Money-- Not Even The Money Called "Wages", Or "Income", Etc.

 

The success of the efforts to misapply the tax over the decades has rested in no small part on a sustained campaign by the tax-beneficiaries to behave as though everyone and everything is a part of the federal universe, in which every dollar changing hands is potentially a measure of a tax liability.  This ploy contributes significantly to the difficulty many people have in remembering that the tax isn't actually a tax on money-- not even on money designated as "wages" or "net earnings from self-employment", or just as "income".  Instead, the tax is on the happening of a taxable event, the extent of which is simply measured by the money changing hands.

“The income tax is, therefore, not a tax on income [money] as such. It is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce. The income is not the subject of the tax: it is the basis for determining the amount of tax."  F. Morse Hubbard, Treasury Department legislative draftsman.  House Congressional Record, March 27, 1943, page 2580

The biggest problem arising from confusion on this point is a tendency to let tax-related arguments, such as those in Tax Court, revolve around whether receipts have been had and/or what receipts are to be called, rather than on the real issue: whether taxable activity has been engaged in.  The result is the exploitation by the adversaries of the truth of the natural blurriness attendant upon the law's use of terms mimicking common words, while having more specialized meanings in the context of the law.

 

For instance, we've all seen sonorous declarations by judges that "wages are income".  Of course, what qualify as "wages" in the context of the tax laws certainly ARE "income", but when a declaration of this sort is made, even those who know the difference between "wages" as defined in the tax laws and 'wages', the common word, can easily let the meanings of each confusingly blend with the connotations of the other.  For those who DON'T already know the difference between the word and the term, sonorous declarations of this sort are entirely misleading, and are taken as a declaration by the judge (or whoever) that 'wages' (under the common meaning of the word) are "income" (as in, "taxable").

 

For that matter, based on this declaration alone, it is impossible to tell what the declarant even means.  We all like to imagine that judges actually know the law, and would, if saying such a thing, simply mean to be understood as saying that "wages" as defined in the tax law are "income", but judges often DON'T know the law, and have themselves been misled by just this sort of statement issuing from the mouths of OTHER judges (or even just from the tax agencies, whose interest in cultivating misunderstanding on this point is obvious).

 

Consequently, it is very important for everyone's clarity of thinking, and productive argumentation, to keep firmly in mind that what matters is not what has been received, or what it is called.  Calling receipts by their proper labels is a form of shorthand, and a useful one in many circumstances, but it presumes that everyone knows how to translate the label used into its proper, complete meaning, and will automatically (and honorably) do so.  Neither of these things can be relied upon, and prudence dictates that the conveniences of shorthand be foregone when accuracy counts.

 

On those occasions, such as in a courtroom, the wise warrior will recognize that when an allegation of the receipt of "wages" is being made, what is really being said is that any money involved was received as a consequence of engaging in a taxable activity, as opposed to money received when NOT engaging in a taxable activity.  That is, the fact that money may have changed hands is, by itself, entirely irrelevant to the foundational issue, which is whether one was doing something upon which the federal government has the authority to impose a tax.  Only IF it can be proven that one was engaged in a federally-taxable activity (and one taxable without apportionment) does the receipt of money then arise as a secondary matter (and then only insofar as particular receipts can be tied to that activity and then be used as a measure of its extent).

 

(For some related observations, see 'A Wage By Any Other Name Is Taxed The Same' in 'Was Grandpa Really a Moron?')

 

Set a brushfire-- E-mail this week's newsletter to a friend

 

*****

 

About Lemons, Bananas, And The Occasional Kumquat...

 

I've recently seen an increasing use of a cheap semantic ploy by the "ignorance tax" beneficiaries-- the deliberate mis-characterization of educated filings as being claims that the filer (or his "income") is "exempt" from the tax, rather than what is really being declared, which is that the earnings involved aren't "income" at all (and therefore not only needn't be "exempted", but actually CAN'T be, since they are not within the tax's scope in the first place).   For instance, in a brief filed a few weeks ago by the Department of Justice (sic) attorney in response to a lawsuit brought by a CtC Warrior to compel the processing of his return, the govt. flack writes, "Plaintiff... ...believes that he... ...is exempt from the application of the income tax to his wages and other income."

 

This ploy is a very calculated effort to steer the thinking of anyone reading this brief (such as the judge) in order to evade what is REALLY being said by the filer (since if what the filer is really saying is squarely addressed, the "ignorance tax" beneficiaries have no argument to make).  Happily, it takes but a moment to expose the nature of this subterfuge...

 

Here's a good relevant definition of "exempt":

EXEMPT, v.  To relieve, excuse, or set free from a duty or service imposed upon the general class to which the individual exempted belongs; as to exempt from militia service.  Jones v. Wells Fargo Co. Express, 83 Misc. 508, 145 N.Y.S. 601, 602.  See 1 St. at Large, 272.

Black's Law Dictionary, 3rd Edition

As can be readily understood in light of this definition, earnings that are not "within the general class of "income"" don't need to be "exempted" in order to not be subject to the "income" tax, and a filing that declines to list some particular earnings in the "income" lines on a tax form isn't treating those earnings as "exempt" (nor is the filer suggesting that he is "exempt from the application of the tax to his wages or other income").  Such a filing is simply treating those earnings as "not income"-- that is, as not within the general class from which they even COULD be "exempted".

 

Here's an analogy that should help make this clear: Consider someone who possesses six lemons and six bananas and who is asked how many lemons he has.  When he reports "Six", he is not "exempting" the bananas, he is simply recognizing that the bananas aren't lemons, and haven't been asked about at all.

 

A more complex formulation doesn't change this principle, by the way.  For instance, imagine that our intrepid respondent is asked about how many pieces of fruit he has, if "fruit" is defined as follows, "For purposes of this inquiry, the term "fruit" includes lemons, oranges and kumquats."  Our knowledgeable respondent would STILL answer, "Six", and he STILL wouldn't be "exempting" his bananas, because they STILL wouldn't be within the scope of the inquiry...

 

Remember, when given a definition as in this example, "fruit" no longer has anything to do with 'fruit', per se.  Were the term meant to encompass "anything that is a fruit", it wouldn't have been given a special definition to begin with-- because that's what the word means WITHOUT a special definition.

 

Further, specifying certain varieties of fruit in the custom definition emphasizes that the term is not intended to encompass everything that happens to be 'fruit' per the dictionary definition of the word.  If the term is intended to encompass everything that happens to be 'fruit' per the dictionary definition of the word, those specified varieties of fruit are already within that definition.  They can only be being specified because they are being DISTINGUISHED from "everything that happens to be fruit", creating a new term that is explicitly NOT "everything that happens to be fruit".

 

Instead, "fruit" is now a term of special meaning that happens to be spelled the same as 'fruit', and it means "lemons, oranges and kumquats".  Even if we apply the "limited expansion" effect to the term "includes", such as is provided for at 26 USC 7701(c) (allowing the expansion of the definition to other things of like kind and class as those listed), looking at the characteristics of those things listed we find that they are all spherical and citric (while also happening to be fruits).  This make our class one of spherical, citrus fruits.  Thus, bananas, which, while also happening to be fruits, are neither spherical nor citric and therefore cannot be deemed included.

 

Obviously, there is nothing difficult about any of this, and it is inconceivable that the mis-characterization of an educated filing as somehow being an assertion of "exemption" is a matter of innocent mis-understanding.  On the contrary, it is entirely deliberate, and the message it delivers should be lost on no one: Mis-characterizations like this are deployed because the law-defiers have no argument against what a CtC-educated filing, claim or argument is actually saying.

 

For more on this subject, see WeedWhackers

 

***

 

What They Said About He Said-She Said

 

An allegation on an "information return" is "reasonably disputed" merely by a sworn rebuttal, each being of the same legal stature-- Joe's affidavit v. Sam's affidavit.  A tribunal is not in a position to unilaterally honor one and dishonor the other.  As held by the Fifth Circuit Court of Appeals in reversing a Tax Court decision and ruling a deficiency determination invalid:

 

“[T]he Commissioner's determination that Portillo had received unreported income of $24,505 from Navarro was arbitrary. The Commissioner's determination was based solely on a Form 1099 Navarro sent to the I.R.S. indicating that he paid Portillo $24,505 more than Portillo had reported on his return. The Commissioner merely matched Navarro's Form 1099 with Portillo's Form 1040 and arbitrarily decided to attribute veracity to Navarro and assume that Portillo's Form 1040 was false.” ..."Therefore, the judgment below regarding unreported income must be reversed."

Portillo v. Commissioner of Internal Revenue, Fifth Circuit, 932 F.2d 1128 (1991)

 

This principle finds expression in several statutes.  For instance, see the language at 26 USC 7491:

26 USC § 7491 -Burden of proof:

(a) Burden shifts where taxpayer produces credible evidence

(1) General rule

If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B, the Secretary shall have the burden of proof with respect to such issue.

(2) Limitations

Paragraph (1) shall apply with respect to an issue only if—

(A) the taxpayer has complied with the requirements under this title to substantiate any item;

(B) the taxpayer has maintained all records required under this title and has cooperated with reasonable requests by the Secretary for witnesses, information, documents, meetings, and interviews;

This section is nicely explained by the 10th Circuit Court as follows:

“Credible evidence,” as used in § 7491(a)(1), means “the quality of evidence, which after critical analysis, the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted.” Blodgett v. Comm’r, 394 F.3d 1030, 1035 (8th Cir. 2005) (emphasis and quotation omitted).”  Rendall v. CIR, 535 F.3d 1221 (10th Circuit, 2008).

Plainly, 4852s and 1099 rebuttals meet this standard and would be sufficient for a decision in the absence of contrary evidence.  In fact, such forms have been found by the IRS to be sufficient upon which to base a decision-- in the filer's favor, and IN THE FACE of contrary evidence-- thousands of times...

 

Reading these rulings, I can't help but think about those "frivolous" delays to which some are subjected, based on nothing more than that a filing doesn't match an "information return"...

***

73 Am Jur 2d § 146 Operation of legislative definitions, generally

Research References

West’s Key Number Digest, Statutes 223.1

 

The lawmaking body’s own construction of its language, by means of definitions of the term employed, should be followed in the interpretation of the act or section to which it relates and is intended to apply.1  By the same token, the courts should not enlarge statutory definitions so as to include a situation or a condition which it might be assumed the legislature would have covered by an enlarged definition if its existence had been contemplated.2  A statutory definition supersedes the common-law,3 colloquial,4 commonly accepted, dictionary or judicial definition.5  In this regard, where statute itself contains a definition of a word used therein, the definition controls, however contrary to the ordinary meaning of the word it may be,6 and the term may not be given the meaning in which it is employed in another statute, although the two may be in pari material.7  Where the legislature has defined words which are employed in a statute, its definitions are binding on the courts since the legislature has the right to give such signification as it deems proper to any word or phrase used by the statute, irrespective of the relationship of the definition to other terms.8  Furthermore, where a word that already has a definite, fixed, and unambiguous meaning is redefined in a statute, the definition must be taken literally by the courts.9

 

1Curle v. Superior Court, 24 Cal. 4th 1057, 103 Cal. Rptr. 2d 751, 16 P.3d 166 (2001); State v. Olsen, 618 N.WE.2d 346 (Iowa 2000); Ohio Civil Rights Commission v. Parklawn Manner, Inc., 41 Ohio St. 2d 47, 70 Ohio Op. 2d 148, 322 N.E.2d 642 (1975); Devers v. Scranton City, 308 Pa. 13, 161 A. 540, 85 A.L.R. 692 (1932).

 

2Lenox Realty Co. v. Hackett, 122 Conn. 143, 187 A. 895, 107 A.L.R. 1306 (1936); Robertson v. Western Baptist Hosp., 267 S.W.2d 395 (Ky. 1954).

 

3Rayonier, Inc. v. Polson, 400 F.2d 909 (9th cir. 1968); 1137 18th Street Associates, Ltd. Partnership v. District of Columbia, 769 A.2d 155 (D.C. 2001).

 

4Western Union Telegraph Co. v. Lenroot, 323 U.S. 490, 65 S. Ct. 335, 89 L. Ed. 414 (1945).

 

5Stenberg v. Carhart, 530 U.S. 914, 120 S. Ct. 2597, 147 L. Ed. 2d 743 (2000); Driscoll v. General Nutrition Corp., 252 Conn. 215, 752 A.2d 1p069 (2000); Erlandson v. Genesee County Employees’ Retirement Com’n, 337 Mich. 195, 59 N.W.2d 389 (1953); Appeal of Clayton-Marcus Co., Inc., 286 N.C. 215, 210 S.E.2d 199 (1974); Minnix v. State, 1955 OK CR 37, 282 P.2d 772 (Okla. Crim. App. 1955).

 

6Appeal of Clayton-Marcus Co., Inc., 286 N.C. 215, 210 S.E.2d 199 (1974).

The general Assembly’s own construction of its language as provided by definitions, controls in the application of a statute, and such definition will be given great weight against any claim that application of the statutory definition defeats the general purpose of the statute.  Ohio Civil Rights Commission v. Parklawn Manner, Inc., 41 Ohio St. 2d 47, 70 Ohio Op. 2d 148, 322 N.E.2d 642 (1975).

 

7Davison v. F. W. Woolworth Co., 186 Ga. 663, 198 S.E. 738, 118 A.L.R. 1363 (1938).

 

8People v. Dugan, 91 Misc. 2d 239, 397 N.Y.S.2d 878 (County Ct. 1977).

 

9Young v. O’Keefe, 246 Iowa 1182, 69 N.W.2d 534 (1955); State v. Standard Oil Co., 61 Or. 438, 123 P. 40 (1912).

 

***

 

An Excellent Response To Tax-Agency Frivolities

 

Here's Another, More Abbreviated Approach...

 

***

 

The Five Most Powerful Things You Can Do About The Systematic Misapplication Of The Tax

  • Study CtC and this website diligently and thoroughly.

  • Speak your educated truth and then STAND YOUR GROUND.

  • Send the Lost Horizons newsletter to EVERYONE in your address book.

  • Don't waste one minute looking anywhere EXCEPT in CtC or on this site for knowledge or understanding of the tax.

  • If you are on the receiving end of any assertions listed or addressed in this section of losthorizons.com, promptly send the appropriate correction to your correspondent, along with firm instructions to read CtC and never circulate such nonsense again.  In short, don't tolerate, and don't contribute to, a "Tower of Babel" effect.

Although it is very contrary to my nature (and my comfort) to have to point it out, it is a simple fact that if anyone else out there-- regardless of their "credentials" or their apparent sincerity-- actually knew what they were talking about regarding the tax, they would have a sustained body of evidence posted which demonstrates the accuracy of their notions.  (Not just the alleged "evidence" which led them to their notions, mind you, such as a collection of excerpted statutory or regulatory sections, but evidence of the practical, positive outcomes of the implementation of those notions...*)  They do not, of course, because their notions are simply incorrect, no matter how sincerely or loudly they may be proclaimed.

 

Time spent looking at material generated or posted by anyone pushing notions about the tax not found in CtC is worse than time wasted.  It is time spent having one's clear view of the reality of the tax and everything related to the tax darkened-- something that will have to be undone later at the cost of more time and often a great deal of effort.  (By the way, don't confuse an inability to understand what one is seeing with a lack of a clear view.  Sometimes understanding lags a fair bit behind the opening up of one's window.  But it will come, as is made clear here.  For more on this, see this page.)

 

Further, the proliferation, and toleration, of error serves to delay the adoption of the truth by your neighbors, family, friends, co-workers, and, perhaps most importantly, those who will thus continue to burden you with erroneous allegations about your earnings.  Why abide this delay, and these ill effects?  Because you persist in harboring your own doubts about what you have learned in CtC, perhaps due to the intense tax-beneficiary and "tax honesty guru" assaults being made on the book for the past five years?

 

Having your own doubts is fine (as long as you continue to study so as to put them to rest).  But that does not justify turning to, or tolerating, either outright demonstrable errors or those who promote what they like to suggest are "alternative or supplemental theories" about the tax or the manner in which the law works, which are somehow never supported by concrete evidence of their soundness.

 

The facts are this simple: Those who focus exclusively on CtC get it right and win victories.  Those who allow clutter from elsewhere into their minds don't.  At best such folks delay getting it right for as long as it takes to purge the clutter; and at worst, they just never get it.

 

(*In anticipation of what some might attempt to respond with to this regrettably necessary plain speaking, I'll point out that managing to be "left alone" for some indeterminate time-- which might end tomorrow-- by an IRS that is happily banking every penny withheld either as nominal "federal income tax" or as "Social Security" or "Medicare" taxes in the meantime hardly counts as meaningful evidence of a practical, positive outcome for anyone.  Nor does merely succeeding in avoiding property loss by virtue of hunkering down in the shadows of the underground economy, nor managing to dodge a criminal conviction by convincing a jury that one was not acting willfully in doing whatever it was one was charged with.)