The Empire Whiffs Back- Strike Two(a)!
This is FRIVOLOUS!! FRIVOLOUS, I tell you!!
So, please say you didn’t really mean it…
As is observed in the first part of this series, the United States federal government is casting about rather desperately for the means to thwart Americans who have learned the truth about the "income" tax, and who are consequently acting to secure their proper legal standing relative to the tax-- and to claim refunds of money improperly withheld, as well. In addition to the "Who's on first?" routine discussed in the previous installment (by which-- as of this writing-- two readers of 'Cracking the Code- The Fascinating Truth About Taxation In America' have been invited to get back down on all fours and return to the fold), several upstanding Americans have been met with other blustery threats and near-comical obfuscations in response to shrugging off the yoke. These cheap and transparent efforts come as no surprise. In the chapter titled 'About 1040s And Claiming Refunds' in 'Cracking the Code...', I offer readers a few words on the subject of what to expect in response to acting upon what they have learned about the law. I'll reproduce a portion of that chapter here:
So, what will the IRS do about a claim for refund of taxes withheld from non-“income”?
It will scream and shout. It will cry and moan. It will threaten and harass. One thing it will not do is execute a substitute for a properly prepared and submitted individual return which alleges more “income” than the citizen has acknowledged. No one in the IRS has any personal or direct knowledge regarding such matters. Another thing it will not do is just send the money, except to the lucky few.
The agency will attempt to deny that a return was ever sent, either by simple declaration or by alleging a defect making the return unprocessable, and therefore will treat it as though never filed. This allegation will typically be accompanied by a proposed tax upon an amount the agency would prefer the target to accept as received “income”, which tax will have been calculated in the most unfavorable possible way. The proposal will arrive with an invitation for the target to agree to the agency’s view of things with a signature and thereby avoid the threatened accumulation of interest and penalties. As long as the citizen has accurately completed and executed the original return, of course, this is an empty gesture-- just one of several scare tactics that will be deployed in an effort to induce an abandonment of the law and a return to harness.
This brings up the issue of comprehensive witnessing of mailings, by the way. One DOES want to be able to substantiate one’s submissions of forms, returns, and responses to the agency; rumor has it that they WILL conveniently lose things one has sent that are troublesome if one doesn’t take precautions. All that is necessary is easy enough, though: One simply has a friend who is not a co-signer on the document in question read one’s submission, put it in the envelope, and convey it to the postal clerk or UPS guy, etc.. One should never touch it once it has been read by one’s friend; and mailings should always be certified with a return-receipt requested.
The agency will also attempt two other significant intimidations. One is to allege that the return in question is “frivolous”-- a violation of section 6702:
Sec. 6702. - Frivolous income tax return
(a) Civil penalty
any individual files what purports to be a return of the tax imposed by subtitle A but which -
does not contain information on which the substantial correctness of the self-assessment may be judged, or
contains information that on its face indicates that the self-assessment is substantially incorrect; and
the conduct referred to in paragraph (1) is due to -
a position which is frivolous, or
a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws, then such individual shall pay a penalty of $500.
(b) Penalty in addition to other penalties
The penalty imposed by subsection (a) shall be in addition to any other penalty provided by law.
This is done in an effort to take advantage of a misunderstanding of the meaning of assessment (as well as to support a contention that no processable return was ever filed). As noted earlier in our discussion of section 6201, assessment is the application of the rate of tax to a previously established taxable figure. Assessment determines the amount of tax, not the amount being taxed.
1: to determine the rate or amount of (as a tax)
2 a: to impose (as a tax) according to an established rate
b: to subject to a tax, charge, or levy
Merriam-Webster's Dictionary of Law ©1996.
6702 addresses a return by which the accuracy of assessment is compromised, not the accuracy of assertions regarding amounts of “income”.
As predicted in this observation, a few of those who have stood up for the law have been answered with an IRS 'Letter 3176'-- a document declaring that if the inconvenient, uppity American to whom it is addressed doesn't get his or her mind right, there's going to be big trouble! The 'Letter 3176' threats invoke the 'frivolous filing' penalty, and they are made to sound very dire. Nonetheless, at every turn this form letter weasels its language carefully and instructively.
First and foremost, the document is really an entreaty, however much it may be presented as a threat.
"This is to inform you of the potential consequences of the position you have taken and to offer you an opportunity to correct your positions within 30 days of the date of this letter."
We're all aware that the warm, fuzzy IRS routinely extends a comradely amnesty to those whose "positions" are illegal or improper, right? All of us who have enjoyed the pleasure of an audit have been the beneficiaries of this institutional 'second chance' program. We've experienced the unexpected pleasure of the 'service' offering-- without even being asked-- to just forget about the interest and penalties it could charge if we'll just recreate our filings (to what is thus our benefit and the government's loss), haven't we?
Uh, no, we haven't.
But that is just to what this 'Letter 3176' amounts. Consider: The notice strives hard to give the impression that the government can unilaterally disregard the target's filing, and can tack on a penalty as well. BUT it says that the government will generously refrain from imposing the penalty, if only the target withdraws the original filed testimony and replaces it with what the government wants attested-to (which, remember, the target is simultaneously being told would be legally meaningless, because the tax agency can unilaterally disregard that original testimony at will...).
What is being implied is that, either way, the amount of tax owed is going to end up being whatever the agency dictates-- the filer's return notwithstanding. The only optional element is the additional penalty, which the agency is offering to forego out of the goodness of its heart.
Well, if this is true..., WHY SEND THIS "LETTER" AT ALL? If the agency has the power to unilaterally make these decisions, there is absolutely no point to asking the target to do anything!
If the agency (or its client) has the power it is suggesting, its correspondent would simply get a notice along the following lines: "Dear Mr. XXX: We have calculated your tax liability for 200X, and converted $XXX of your withheld property in escrow to our ownership. An invoice for the outstanding balance [if any] is attached. Your filed return was frivolous, and provided us with the authority to add a $XXX penalty to your tax liability. We have [added or foregone] this penalty."
After all, if the agency has the unilateral authority it is attempting to suggest that it does, why would it care whether another return was filed? (Readers of 'Cracking the Code...' will know the answer to that, of course.)
Instead, the agency DOES make this "threatening" request; and/or "proposes" calculated liabilities to which it asks its target's agreement in order to have effect (see examples of this here). Sometimes it begins sending endless "levy notices" to the unbending filer (which notices, insofar as they concern years when only accurate, educated returns have been filed, only allege liability for a penalty, and not for any tax related to the year in question-- even when the target has received a complete refund of every penny withheld or paid-in in connection with that year...). The sum of all of this is, of course, that the agency DOESN'T have the unilateral authority which it suggests that it does, and where accurate, educated filings are concerned, its "frivolous letters" are just exactly that: frivolous letters.
The 'Letter 3176' includes the following language, as well:
"If you do not file a correct return within 30 days of the date of this letter, or if you file one or more other documents taking a frivolous position, we will assess the frivolous return penalty on each document filed."
"If you send us a correct return(s), we will disregard the previous document(s) filed and not asses the frivolous return penalty."
These elements of the 'letter' emphasize that the government CANNOT unilaterally disregard the filing that it finds so troubling. (Furthermore, several of the filings to which these 'letters' respond are amendments of previous 'conventional' filings made under the common misunderstanding about the law which the government favors. In light of that, can we be sure we know exactly which return the government is saying is "incorrect"?) The first of these two sentences immediately above merits another comment as well. "...if you file one or more other documents taking a frivolous position,..." is not the same as "...if you file more documents taking a frivolous position,...". There actually is no place in the 'Letter 3176' that explicitly says that the return to which the form responds is frivolous. The remainder of this clever sentence is informed by what comes before: "...we will assess the frivolous return penalty on each document filed." refers to any "...documents [filed] taking a frivolous position." Legitimate enough, when carefully read-- but also clearly intended to communicate that the return being obliquely referred to is itself legally subject to the penalty, while not actually saying so.
Finally, the 'Letter 3176' includes the declaration that "...we will not respond to future correspondence concerning these issues." The "issues" to which this rather high-handed announcement refers are not identified, although toward the end of the 3 page document we are told that "Revenue procedure 68-12, 1968-1 C.B. 763 does not allow appeals procedures in cases of failure or refusal to comply with tax laws because of moral, religious, political, constitutional, conscientious or similar grounds." Perhaps we are to assume that these are the "issues" in question. Although I have not seen the returns being attacked, it is a virtual certainty that no return filed by a reader of 'Cracking the Code...' will have suggested in any way that such "issues"-- or anything other than the words of the law-- are relevant to the filing.
This arch declaration notwithstanding, a response to a 'Letter 3176' is clearly called for, if only to provide fair warning to the government that its recalcitrance will not be quietly tolerated. It is my pleasure to share, with those who are interested, a truly outstanding response crafted by 'Cracking the Code-...' warrior Val-David Smithson, in response to a recently received version of 'Letter 3176'.
P. S. It is worth noting that while the general legal meaning of "frivolous" can be summarized as "having no basis in law", in regard to tax returns themselves (rather than "claims", "positions", "information", etc.) "frivolous" is a statutorily defined legal term, created by 26 USC 6702 (reproduced above). To declare a return "frivolous" is to assert that it explicitly meets the conditions laid out in that statute. See a discussion of those conditions here.
P. P. S. Sometimes, "3176 letters" are accompanied by "questionnaires", which are themselves amusingly revealing of the truth when read with an educated eye. Learn more about those here.
If we can't win on the law, we'll shoot for implausible deniability!
In the introduction to this discussion, I mentioned a nearly comical alternative obfuscation to which one reader of 'Cracking the Code...' has recently been subjected. This American has received a 'Letter 2269C' from the IRS informing him that the 'service' is unable to respond to his inquiries regarding a refund because it can't find his returns! This despite the fact that he sent his returns 'Certified, Return Receipt Requested', and subsequently to getting his delivery confirmations, received a frowning correspondence from the IRS Ogden, Utah, 'Compliance Center' explaining to him that his 'positions' are frivolous.
As I noted in the portion of 'Cracking the Code...' excerpted above, it is a common ploy for the 'service' to behave as though it never received a given (or "valid") return, in order to provide a pretext for other acts. However, I have never seen an outright declaration that a return cannot be found or is alleged to have never been received.
This 'Letter 2269C' suggests that my correspondent send a copy of his return(s), and provided a fresh 1040 and a transcript of what the 'service' proposes to be his "income" received-- just in case he needed them... In combination with the aforementioned ominous communiqué from Ogden, this would appear to be a transparent attempt to intimidate this upstanding American into "getting back with the program".
After the 'Letter 2269C' displayed above was met with a stern remonstrance and copies of the previously filed documents, the dog coughed up the homework. On Feb. 12th, 2005, my correspondent received notice that his returns would be processed, and that any refund owing would issue within 6 - 8 weeks.
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