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How Crazy Is That!

Adolescent fears, and "section 83" nonsense

HAVE YOU EVER ENCOUNTERED THIS PERSPECTIVE: "CtC?, Well, I've heard that some of those CtC people run into a hard time before getting their withheld property back from the feds or states. I'm waiting till I find the "right" means of ending my (and by implication everyone else's) improper subjugation to the income tax-- you know, the one that the government is okay with..."

Have you ever reflected on just how crazy that is?

It's mind-bogglingly disconnected from reality. But it's out there.

The "tax-honesty" movement has always been thick with loony "silver-bullet" ideas, each touted as the secret word that just needs to be spoken or filed or added, at which point the state will just shrug its shoulders and say, "OK, you got us!" with a wry smile, and the sun will come out and warm the world. No fuss, no muss.

Common sense tells the grown-up mind that anything which actually threatens the status quo will be strenuously resisted and discouraged by the state. Indeed, it can be said that in a milieu of general governmental corruption like ours today the degree to which something is strenuously resisted and discouraged by the state is a measure of both its correctness and its importance. This is especially true when the discouragement campaign is ostentatious, but is accompanied by steady, year-after year acknowledgements of the inconvenient truth it is intended to keep people from noticing.

Sound familiar? It should. It is precisely the history of CtC, which really did "get 'em", as the scholarship and the eleven-years and counting record makes clear.

Throughout that entire eleven years CtC has been the focus of a sleight-of-hand project under which every evasion and adverse expression or act the state thinks it can get away with is deployed by one hand of the state. This is done in order to keep Americans from paying attention to and recognizing the significance of the complete refunds acknowledging the the book's accuracy being quietly issued with the other hand.

 Think about that, and reflect on just how crazy it is for anyone to not recognize this, and to let him- or herself be persuaded or intimidated into looking past this obviously real gold bullet in search of a mythical "silver bullet".

Silver-bullet fantasist leading the naive past a mountain of CtC evidence

RIGHT NOW, A NEW VERSION OF "SILVER-BULLET" FANTASY is circulating briskly within the "tax honesty movement". This one is the notion that section 83 of the tax code is the long-sought mystical secret word by which the mis-application of the tax will be undone.

The theory grows out of ignorance of the actual nature of the tax, and presumes that "everything that comes in" inherently qualifies as "income" subject to tax. Looking at section 83 of the IRC, which provides that when property is transferred in connection with the performance of services, the difference between the fair market value of that property (once firmly owned by the recipient) over what the recipient paid for it (if anything) is the measure of the taxable gain involved, the theorists imagine that the taxable portion of their pay is now only the excess of the amount received over what is imagined to be one's own cost of labor-- which most folks would say is $0.

Now, of course, as an economic matter, one certainly does pay in labor/time what one gets in exchange-- indeed, in the eyes of the payer, a worker pays MORE in labor than the payment received. And if the tax WERE on merely "what is received" or "what is gained" or anything like those things, this theory would be interesting, and Congress really might have made a giant boo-boo in adding section 83 to the law. Silly Congress!

But the tax is NOT on any of these things, of course. That's why section 83 has remained unchanged in the law for the 45 years since it was added in order to sort out how the growing practice of offering stock options and other non-cash forms of remuneration would be handled under the tax law.

IN FACT, THE "SECTION 83" THEORY IS A RE-PACKAGING of an old errant notion of a "property basis in labor", which holds that labor is personal property which is exchanged at par for pay, making the pay not a gain and therefore (for some reason) not taxable. Again, this theory is born of ignorance of the real nature of the tax, in which it is not understood that it is neither the labor, nor the pay for labor being taxed, but the privilege being exercised when certain distinguished, tax-entity-connected labor (or other activities) are being performed.

It is true that in the actual structure of the tax, "gain" is a necessary element in the measure of the taxable activity conducted. But because it is the voluntary exercise of federally-taxable privilege being taxed under that actual structure, Congress-- the privilege-grantor-- gets to decide what qualifies as relevant "gain" and "cost". Except for certain demonstrable business expenses and the like, what Congress allows to be taken as "cost" is the amount of that year's "personal exemption(s)", along with a variety of possibly-available deductions and credits.

UNFORTUNATELY, THOSE TAKEN IN BY "SECTION 83" NONSENSE are due for trouble. Among other things, unlike the truth about the tax revealed in CtC, which has forced the IRS to resort to frivolous hoaxes as pretexts for its sporadic efforts to discourage and evade educated claimants, the "basis in labor" notion is an actual current official "frivolous list" item:

(4) Wages, tips, and other compensation received for the performance of personal services are not taxable income or are offset by an equivalent deduction for the personal services rendered, including an argument that a taxpayer has a “claim of right” to exclude the cost or value of the taxpayer’s labor from income or that taxpayers have a basis in their labor equal to the fair market value of the wages they receive, or similar arguments described as frivolous in Rev. Rul. 2004-29, 2004-1 C.B. 627, or Rev. Rul. 2007-19, 2007-1 C.B. 843.

At the same time, of course, what a lame "silver bullet" this theory is, even were it not manifest nonsense! After all, even if the imagined loophole existed, Congress could change section 83 any time it caught on to its mistake.

I THINK I'LL STICK WITH THE ACTUAL LIMITS on the tax. Those actual limits have obtained since the very beginning in 1862, managed to keep the tax successfully confined for its first eighty years, and have been inexorably pulling it back down into its proper shape again for more than ten years now because they're thoroughly grounded in Congressionally-untouchable Constitutional provisions.

"Inexorably" just isn't good enough for some folks, though, when fantasies of magic accidental "escape hatches" dance in their noggins. These folks withhold their energy from the real work at hand and urge others to follow them into ineffectiveness and future trouble.

How crazy is that?!

"Those who profess to favor freedom, and yet depreciate agitation, are men who want crops without plowing up the ground. They want rain without thunder and lightning. They want oceans without the awful roar of its many waters. This struggle may be a moral one; or it may be a physical one, or it may be both moral and physical; but it must be a struggle. Power concedes nothing without demand. It never did and it never will."

-Frederick Douglass