Regarding Misunderstandings Of Tax Law Generally
THE MISPERCEPTION THAT THE INCOME TAX is administered as a non-apportioned direct tax (and yet is upheld by the courts) has led many who are unaware of (or have been dissuaded from reading) CtC to cast about for an explanation. This is because if that perception was correct, the tax would necessarily be unconstitutional-- non-apportioned direct taxes are prohibited in two places in the Constitution, and those prohibitions have never been repealed or diminished.
However, the actual structure under which the tax is administered is well-concealed from casual view (in order to promote popular ignorance of the limits to which the tax is confined and encourage those to whom it does not apply to allow themselves to be taxed regardless). Thus, those who are aware of the Constitutional prohibitions, but ignorant of the structure of the law, are perplexed and left to speculate. Unfortunately, these speculations lead to distracting-- or even dangerous-- errors.
In general, the theories resulting from such efforts fall into two categories. One of these categories involves holding that somehow all the rules have been changed (usually on the sly); the other concludes that we are all victimized in simple, arrant defiance of the original rules.
THE FIRST OF THESE GENERAL CLASSES OF MISUNDERSTANDING imagines our victimization by complicated legal constructs involving adhesion contracts, the Uniform Commercial Code, subtle distinctions between types of citizenship relating to the 14th Amendment, or similar arcana. Whatever the details, each of these notions proposes a successful conspiracy having at some point replaced the federal and state governments in the USA (for all practical purposes); or an organic but comparably broad transformation by judicial interpretation.
Theories of the second variety typically propose that because (as their proponents have erroneously concluded) "income only means corporate profits", "the subject of the tax is never specified in the law", "the tax only applies to foreign income", or the like, the income tax is applied to other earnings and subjects by an ongoing conspiracy to ignore these limitations, though the law and government are unchanged.
The misunderstandings in this second variety actually often strike close to the mark. They are typically a product of a fairly sophisticated perspective on the law and at least a measure of research-- although usually research based upon the distorted IRC representation of the law rather than the actual laws-in-force themselves. Regarding this category, I will content myself for the moment with pointing out that no tax case has ever been prosecuted against a person in which it was alleged that they were a corporation, when they were not; nor has there been any tax claim prosecuted against an American based upon the assertion that their earnings were from foreign sources.
Similarly, no prosecutor, in the absence of a legitimate pretext for alleging that a defendant or his earnings are subjects of the tax, has ever explained that the case was based on no rationale other than, "We just want the money!" Later on, I will briefly point out what it is that tax cases actually ARE prosecuted over, the observation of which will suffice to reveal that there are more things in heaven and earth than are accounted for in these philosophies. (A comprehensive understanding of just what these theories get wrong, and what is missed by the inadequate or faulty research behind them, requires the reading of 'Cracking the Code-...').
The misunderstandings of the first variety, on the other hand, appear to be the product of little more than mere guesswork and paranoia bolstered by no research at all, if not merely simple and straightforward con-games seeking to sell services and materials to the unwary. Either way, they represent potentially dangerous and expensive pitfalls to those seeking a means to secure lawful treatment by government concerning taxation. A brief discussion of a couple of representative elements of these 'theories' should help guide such seekers away from error.
Among far too much else to address comprehensively, some of these complicated views suggest, for instance, that by engaging in even so little as the routine practices of life, such as using the postal system, one renders oneself subject to the income tax by way of adhesion contract. This is to say, in accepting the benefits of government-administered services, one is implicitly agreeing-- and becomes legally bound-- to the imposition of the tax.
A charitable perspective will imagine that the proponents of this view are being misled by courtroom rhetoric. Such rhetoric (dicta) really has nothing to do with any law or legal construct, but finds its way into opinions nonetheless because judges often feel under pressure to explain or defend their rulings.
Many prosecutors and judges have, over the years, pontificated to a courtroom regarding a righteous connection between government services and taxation, and have even based prosecutions and rulings upon such grounds. Prosecutors are free to construct any argument the court will permit-- even ridiculous and indefensible arguments-- and such arguments will prevail if not adequately defended against.
However, it need scarcely be pointed out that while making use of government services might arguably create an obligation for a reciprocal contribution to the system one way or another, it by no means follows that a Constitutionally prohibited form of taxation is thereby let free to have its way.
The notion of adhesion contracts in this context is a violation of the most elementary principle of law, and would not be sustained in any courtroom in the country if defended against with even casual competence. There is no jury which would not answer with a resounding and unanimous, “What, are you Crazy?!” in response to a prosecution arguing that solely because of one's application for a social security number, or use of the mail, or zip-codes, etc., one became subject to the income tax; nor any judge that would tolerate the imposition of a contractual obligation against a defendant allegedly made an unknowing-- hence involuntary-- party to such an agreement.
HOWEVER, AS NOTED ABOVE, judges will rule based only upon what is presented in the trial-- they rarely interject their own knowledge of the law into a proceeding (whatever that knowledge may be). Consequently nonsense cited by the prosecution and undefended against often rules the day, and builds its own body of misleading 'case law', as well.
For instance, many years ago a Circuit Court of Appeals allowed to stand uncorrected (and even adopted in the language of its decision) a prosecutor's declaration that the Supreme Court, in its Brushaber decision, ruled that the 16th Amendment authorized a direct, non-apportioned tax on incomes-- the direct opposite of the actual ruling in that case-- and that error has been cited and deployed against poorly prepared defendants in lower courts ever since. In any case, no one has ever been convicted with language intoning that, "Having been proven to have used the postal system, yet not paid income taxes for three years, you have been found guilty ..."
Other, more overtly paranoid versions of these complicated arguments maintain that a second government was imposed or installed within the Union and now rules without Constitutional limitation, or that Union state citizenship has been abrogated and replaced with universal citizenship of the District of Columbia, and so on. These views take cognizance of some elements of the law, but entirely out of context-- leaving their adherents at such a complete loss in making sense of the reality they perceive that they can find refuge in nothing but theories of elaborate conspiracy and craft.
Such perspectives, and, to a somewhat lesser extent, most of the other varieties mentioned here, can also be viewed less charitably: They may simply be efforts to invoke the specter of the insurmountable enemy against what would otherwise be an obligation to take up a grueling and dangerous battle. It is much simpler, after all, to sit unengaged while grousing about an invisible and overwhelming conspiracy than to conduct research, file papers, and confront the other side.
If these notions of usurpation were sound, however, nothing about the current system as it is actually implemented would remain. For instance, we would hear no more of even the rhetoric of “voluntary compliance”-- we would all be sent a bill as we are for our property taxes. This might not preclude making a return and taking deductions, but there would be no more talk of self-assessment.
That such rhetoric remains, with all its implications, reveals the fallacy of this type of misunderstanding. It is obvious that if it could, the system would drop like a hot potato the absurd straining to square the circle that such nonsense represents.
For example, because it actually relies on the "self-assessment process, and cannot do without it (but doesn't want to admit why, and what self-assessment is actually all about) the government has been brought to making the ridiculous contention that the "income" tax scheme uses "self-assessment" because the feds can’t manage the logistics of direct assessment. How absurd! Every podunk little village and burg in the country manages to send out property-tax assessments-- twice a year in many districts.
The IRS's 130,000 staffers are perfectly capable of sending out an assessment to every earner in the country, while leaving the challenging of such assessments, and the claiming of legislatively granted deductions by means of a return afterward, to the efforts and interest of that earner. If the system no longer operated under Constitutional constraints due to having been conquered from within or for any other reason, that's how things would be being done right now.
The fact is, the system remains Constitutional, and is therefore completely dependent upon (or subject to the effect of) 'self-assessment'. Of course, the conspiracy-theorists hiss that to drop the rhetoric would reveal the conquest... but they offer no explanation of how convictions under this invisible change of rules are accomplished, or why, if the conspiracy is so complete as to encompass every judge, prosecutor, defense attorney, juror, etc., any silence or secrecy is still required. Nostalgia?
THE REALITY OF THE MATTER IS SIMPLE: a perfectly Constitutional program of taxationes (being primarily excises upon the benefits of government-connected privileges, including the pay of government workers and the profit from government-connected business) has been constructed and imposed under the title of the 'income' tax. Its mechanisms are certainly crafty and venal in the extreme, such as presenting the law in the deliberately incomprehensible form of the current IRC; co-opting the involvement of common-law employers through functionally fraudulent and coercive means; mutely permitting a massive misunderstanding by citizens and ‘professionals’ alike to accomplish the fleecing of vast amounts of wealth from its rightful owners; and much else. In practical application, these corruptions can lead any unschooled observer toward complicated speculations regarding the reconciliation of the plain law and how it appears to be administered.
However, while the overall structure and details of the mundane system that is actually deployed are too complex and extravagant to be done any justice here, some of its concrete mechanisms are easily and unambiguously visible-- maybe so much so, in fact, as to be overlooked for their ubiquitous familiarity. Observe, for example, the diligence with which the federal government nearly (but not quite) demands that every new hire in America be coerced into signing a form (W-4)-- specified by hidden but clear statutory language as solely for the use of government workers-- upon which they authorize withholding of a portion of their earnings and its delivery into the hands of various tax agencies. Similarly, each January every business in America is virtually (but not quite) commanded to execute affidavits (W-2's and 1099's) declaring under penalty of perjury that all of their staff and contractors were paid during the previous year for the performance of government work, according to the law regarding the production of such affidavits.
The most cursory investigation will reveal that substantial efforts are undertaken by the government to ensure that these things are done under a complete misunderstanding as to the legal meaning of the declarations that executing these instruments entail. Workers and business owners alike receive carefully and deliberately misleading guidance in that regard, because-- contrary to the dark speculations informing the complicated theories discussed above-- the real scheme is actually centered almost wholly upon these forms and a general misunderstanding of their legal uses and implications.
Every April 15th or before, the vast majority of citizens in America-- being nearly (but not quite) ordered to do so-- sign a form under penalty of perjury to which copies of the aforementioned affidavits are attached, and on which are recorded the assertions of these affidavits, in the schematically critical act of voluntary self-assessment. Every year, some number of unfortunate dupes are prosecuted explicitly for having received "wages", or profits in the course of their "trade or business" (another term custom-defined within the law, as "the performance of the functions of a public office"), while failing to file the form or pay up, because of the existence of unrebutted affidavits declaring them to have received these or other types of legally taxable "income".
Every year, people ARE convicted with language like, "Having been proven, by virtue of this (W-2, 1099, or other "information return"), to have received "wages" (or other forms of "income"), yet not paid income taxes for three years, you have been found guilty ..."
THE MUCH MORE COMPLICATED LEGAL AND TACTICAL SUBTLETIES by which these instruments and their effects are administered, actualized, contested, defeated or perfected notwithstanding, there need be, and is, nothing cleverer or more mysterious than essentially these and a few similar things accomplishing all that we see and suffer regarding the income tax. These simple instruments and the legal construct within which they operate-- coupled with a general ignorance of their purposes, implications and limitations-- suffice to pour trillions of dollars into the treasuries of the state and federal governments each year. Were they not the absolute heart of the matter, you can be sure that the vigor by which they are pressed upon every worker and business in the country would have been abandoned decades ago; indeed we would never have seen them in the first place.
But we do. In fact, an enormous portion of the entire structure of the income tax scheme, and particularly that portion only ever brought to bear upon the typical American, is specifically geared toward accomplishing the universal adoption, and subsequent exploitation, of these instruments and the custom-defined legal terms with which they are associated-- because they are its essence. As an IRS agent was made to admit while under oath during a trial a few years ago, "We can't touch anyone unless a return has been filed". (This admission, taken out of context, has been misunderstood by some as referring to a '1040' return, unfortunately contributing to a completely erroneous notion about the purpose and effects of that type of 'return'. The type to which the agent refers are "information returns"-- W-2's and 1099's.)
The true scheme is both more and less honorable than what is imagined by those suffering from the misunderstandings discussed above. More, because it is consistent with and nominally respectful of the Constitution. Less, because rather than a forthright usurpation it relies on subterfuge and engenders conflict-- pitting workers and companies against each other by forcing the former to risk their jobs by demanding lawful behavior from the latter, and incentivizing the latter to sacrifice the interests of those workers in order to forestall threatened abuse at the hands of the IRS-- among many other sleazy tactics too numerous to list here. It is, in short, a shitty little scheme, but it's not invisible, it's not self-contradictory, and it's not the UCC.