Frequently Asked Questions Page One
READ EVERYTHING THAT FOLLOWS CAREFULLY AND THOROUGHLY
Although material on this page is organized topically, don't assume that you can identify what you should read by picking among the topics. Some material which is very important to a complete understanding of one subject area may be found in several different places.
READ THE WHOLE PAGE!
Every individual is responsible for his or her own overall education, conclusions and decisions, regardless of what may be read here. Also, those who find their way here but have not yet read 'Cracking the Code-The Fascinating Truth About Taxation In America' might find much of what follows cryptic and/or confusing.
Read the book.
No other source of information on this subject will suffice-- in fact, most will simply make the truth difficult to understand.
Indeed, even those who HAVE read the book should be wary in regard to other sources of information. Many tax "theorists" and soapbox orators have studied CtC themselves and have incorporated elements (or even a great deal) of what they have learned into their own presentations. Thus, such presentations may appear on the surface to be soundly based. However, since these partial-adopters have also clung to elements (or even a great deal) of their original misunderstanding, they continue to promote much error-- which is now just better concealed, or more convincingly presented, than before.
If needed, click here for a brief review of the truth about the income tax.
Click here for a refresher on some important definitions and concepts EVERYONE, and especially "non-filers", should follow this link
A Lost Horizons "Income" Tax-related Site Map
Additional useful information can be found by visiting, and navigating from, here. |
The following links will take you to the indicated FAQ topic area (but everyone is strongly encouraged to read this whole page-- material located in one topic area can often significantly help in understanding the nuances of a different topic area):
Regarding How To Fill Out "Form XYZ"; And Working With CPAs
Regarding "Silver Bullets; And Information Returns Sent To State And Local Tax Agencies...
...Including Refunds A Few Folks Are Said To Have Gotten Filing "Zero Returns"
Regarding State-Granted Privileges; And S-Corps, As Well...
Regarding The Statute Of Limitations On Refunds...
Regarding Audits, Liens And Levies...
Regarding "Proposed Individual Income Tax Assessments"
The Meaning Of "Statutory Employee"
Regarding "Frivolous Arguments"
About The Status Of Postal Workers
Regarding Tax Agency Assertions That A Return Is "Frivolous"
Regarding Concerns About Executing A 1040
Frequently Asked Questions Page Two
Q. I didn’t find instructions on how to fill out “Form 123”, and/or “Schedule ABC” in ‘Cracking the Code-…’. What do I put on all these lines? A. No one-- whether a government agent, a relative, an attorney, or anyone else (including me)-- can tell another person what to put on a tax-related form, which one to file, or whether or not to file one at all, other than in the most general terms. In almost every case, such forms are affidavits, by which the testimony of the signer is conveyed. That's why I don't give instructions in CtC, but merely explain how I have filed my own returns.
Furthermore, someone seeking advice may have a night-job at the Post Office, or receive a military pension, or have something else of the sort going on that results in taxable receipts, but that I don't know about and they don't mention. Under such circumstances, if I were to advise putting X on line Y, or just filing Form Z-- or not filing Form Z--, I might be advising incorrectly. Thus, I will neither advise nor assist any person as to what he, she, or it should put on a tax-related form; which one to file or not file, etc; or whether or not to file one at all; period. Nor will I advise any person as to which of his, her, or its receipts qualify as "income". However, making these decisions, and filling out the forms, is not rocket science. Here is the long and the short of it: Learn (or review) the actual custom legal meaning of every term used in the relevant law, on the forms, and in their instructions, and then fill in the appropriate blanks truthfully and accurately. There is nothing more to it.
In the vast majority of cases the only difference between filling out tax forms in ignorance of the law and filling them out in knowledge of the law will be the "income" amounts one starts with. (Another, consequent difference is that, in most cases, starting with accurate "income" figures will mean that there ARE no complicated calculations, deductions, etc, to concern oneself with. Educated Americans will typically find themselves doing their taxes in ten minutes, and without boxes of receipts, an adding machine, two packs of cigarettes and a stiff drink afterward to numb the sense of having just bent over for another annual..., well, let's just call it an "indignity"...)
In the most general terms, this means that where a form asks for an original figure (that is, not the mere product of a calculation involving figures already entered thereon), a filer should take care to record what is precisely correct to the best of his or her own fully-educated knowledge and belief, paying careful attention to the fact that every such entry constitutes both a declaration as to an amount, AND a declaration as to the legal character of that amount. Both of these considerations apply to figures transferred from other forms, as well: If the filer transfers such a figure to a form he or she is completing, he or she is declaring that the figure involved is both accurate as to the amount, and to the legal status of that amount.
This is also true of any figures on any form submitted with a return. By such a submission (or transcription), the filer is explicitly endorsing the accuracy-- both as to the amount, and as to the legal character-- of any figures on such a form (or as transcribed). That's why the law provides for, and fully accommodates, a filer replacing inaccurate originals of any forms needing to be attached to a return with accurate instruments reflecting his or her own testimony.
By the way, some will find it useful to bear in mind that when a CPA, or other service-provider "does somebody's taxes", that service-provider operates on the assumption that the customer is deliberately and knowingly certifying the accuracy of everything handed over to him or her in the way of documents and "information returns". For instance, if someone hands over a W-2 (or other "information return") to a tax preparer, the tax-preparer takes that as THE CUSTOMER'S declaration or agreement that everything reported on that form is accurate (and it is the customer who will finalize and take responsibility for that certification by signing the completed return). The service-provider is not making such determinations for himself, nor could he. After all, what does he know about the circumstances reflected on any such form? Precisely the same is true when a service-provider is given a 4852 or other instrument by which the filer is correcting forms known to have been sent to the relevant tax agency with whom the return being prepared will be filed.
The only thing for which such a service-provider is responsible (and the only thing that is his legitimate concern) is the accuracy of his calculations in processing the numbers given to him, and the accuracy of his application of relevant deductions and so forth to, and in connection with, those provided numbers. The filer, and no one but the filer, determines the "income" amounts involved. |
Q. I‘ve read ‘Cracking the Code-…’ and have concluded that I don’t receive any “income”. I don’t have anything withheld either, and so I don’t need to file for refunds. But I’ve still had to file tax-related forms to put an end to IRS allegations of liability. How do I arrange it so that in the future I am just left alone, and not hounded or put to trouble over a tax that I don’t owe? How do I fire the ‘Silver Bullet’? A. For most people, there are three circumstances under which the issue of filing arises:
Thus, even if withholding and refunds (and actual receipt of "income" above the exemption amount) are out of the picture, there is only one way to be "left alone" in regard to the “income” tax (that is, to be spared the inconvenience of having to file anything). It is to see to it that no one files "information returns" (such as W-2’s, 1099’s or K-1's) inaccurately alleging payment of “income” to you. That’s it.
Q. Once someone has rebutted the erroneous evidence which alleged that they had received "income" last year, would it be necessary to do the same for previous years, or will the government just recognize that that person has never been an "income" recipient and send back his or her money, or adjust his or her 'account', accordingly? And once the federal government has been responded to for any particular year, shouldn't the state in which the filer lives recognize that no state filing needs to be made for that year, and previous years?
A. Every year, and every 'information return', is treated by each taxing agency as a separate, free-standing event in this respect. Each such return must be acknowledged or corrected individually. Information returns do not constitute blanket declarations that, "Everything paid to [the recipient] was "income". Rather, they each say, specifically, "I paid [the recipient] this amount during this period; and the amount listed has the legal character of "income"". Each response is naturally of the same character-- that is, it can only address the specific assertions made on a specific individual information return, and nothing more. Any effort to expand the effect of a response to more than one allegation would render it a diluted, and therefore legally insufficient, response to any specific allegation.
The same principle applies in regard to 'information returns' sent to several different government entities, i.e. federal, state, and/or local. Even though they allege the same things (since state and local "income" taxes are measured by federally-connected receipts just as are the federal versions), and for the same periods, they constitute legally independent allegations, made to different, independent parties in different, independent jurisdictions-- and must be responded to independently (although a copy of the same rebutting instrument-- in association with each jurisdiction's specified 'return' form-- is often sufficient for all, and may even be explicitly required under the state and/or local protocols). In this respect, there is no relationship whatsoever between one's dealings with any one taxing authority and any other.
This principle applies in the other direction as well: How any given taxing authority responds to a filing has nothing to do with the response of any other such authority. Indeed, although everyone should check the relevant state and local statutes for themselves, no state or local tax structure that I have seen so far provides for ANY relationship between one such filing and any other, besides the specification that whatever "income" figure one attests-to on one's federal form is to be used as the starting point on state and local forms for the same period as well.
(By the way, I have occasionally been asked how it is that state and local governments imagine that they can tax "income"-- that is, how can they tax the exercise of federal prerogatives. It's simple-- the federal government gave permission for any "duly constituted taxing agency having jurisdiction" to do so, in section 4 of Title 1 of the Public Salary Tax Act of 1939 (now codified as section 111 of 4 USC). (The text of the Public Salary Tax Act can be found on the CtC Companion CD.) |
Q. I see all these readers getting refunds, but isn't the government just going to come back later and demand the money back?
A. Of course not. The reason a properly-claimed refund (numbers all correct, nothing claimed that wasn't actually withheld, etc.) issues in the first place is that the related evidence on record in the government's own files has established that the government has no claim to the money, and that the refund must be made as a matter of law. Indeed, as you will have noticed, refunds received by many CtC-educated Americans have been personally supervised by IRS employees, and in some cases readers have gone to the trouble of securing transcripts of their account status after receiving their refunds, which clearly acknowledge the legitimacy of their claims. In this regard, it is important to remember that a refund is the FILER'S money being returned. It is NOT the government's money being 'paid out'.
Further, even if a government wished to "rescind" a refund (or act as though it could), the simple fact is that unless that government is a party to the original transactions reported on a return/claim for refund, it has no standing to modify the evidence on the basis of which the refund is issued, and therefore no standing to modify the resulting refund itself-- bluster to the contrary notwithstanding. (Material related to this subject can be found at 'It's Time To Demand An End To This "Frivolous" Nonsense'.)
Indeed, unless a refund recipient can be cowed into "voluntarily" revoking his own claim to that property, and declaring a governmental claim to it, I am at a loss to imagine how even a legitimate lawsuit could be maintained to reverse a refund. There is no injury which has been suffered by the government, and it would have no claim to press. It would be a classic "failure to state a claim upon which relief can be granted". (Even if a suit WERE to be allowed to proceed, the burden of proof would be on the government, by the way. I want to be in the courtroom as that government is attempting to explain what it is about a defendant's receipts that makes them qualify as "income"... Of course, that being yet unproven, the government has no claim to press, and thus no standing in court-- but I repeat myself.)
In fact, that such a suit (or other means of overcoming a filer's testimony by anything but craft and intimidation) is precluded is no surprise. It is, after all, nothing more than an actualization of the provision of section 93 in the original revenue act that, "...the [amount of "income" declared by a filer on his or her return] shall be received as the sum upon which duties are to be assessed and collected." (embodied in the current statutes primarily in section 3173 of the Revised Statutes, as amended in 1919).
(Since these words were first posted, the federal government HAS engaged in a PR campaign "lawsuit"-styled contrivance in which it has, almost comically, begged a district court judge to order my wife and me to change the testimony on our 1040s for two years, so as to allow the government to then claim that we owe it taxes for those years. That is, even in its "complaint" in this "lawsuit", the government has tacitly admitted that it has no claim to our money. However, that inconvenient fact isn't stopping it from pretending that there is some legal doctrine by which we can be forced to create one for it. Necessity is the mother of invention, and corrupt "necessity" is the mother of pretense...
Needless to say, we cannot, and will not, be made to change our testimony-- and even the unscrupulous hacks behind this "lawsuit" never expected anything different. The reality is, this April 12th, 2006-launched "lawsuit" is just a cheap media event intended to frighten those who only read the DoJ/IRS press-release-inspired headlines away from the knowledge in CtC (even while its structure inherently confirms everything I said above on the subject of refunds... See the segment below for more on this.)
Q. I've heard rumors that at one time some people who have challenged the “income” tax based upon the ‘861 argument’, or Irwin Schiff’s views, had gotten a few refunds, but then were challenged later by the government over their claims. If true, why? A. Refund claims made in the confusion of the '861 argument’-- or Irwin Schiff’s income-means-corporate-profit-only position, as well-- inevitably suffer as a consequence of the inability of those misunderstandings to accommodate the provisions of law reflected in Subtitle C. (This happens because the elements of Subtitle C-- the imposition of taxes directly, such as in chapter 21, and the withholding of prepayments for Subtitle A taxes measured by the receipt of “wages” in chapter 24-- fundamentally contradict the premises on which the ‘861’ and Schiff theories are based). This blind spot results in filings which are inherently self-contradictory, and which support the government's position. They demand a refund of a portion of "income" taxes withheld under the title of "Federal Income Taxes", while declining to do the same for federal "income" taxes withheld under the name "Social Security Taxes" and "Medicare Taxes"-- and leave at least portions of the evidence about the filer’s receipt of “income” created by others uncorrected, as well. (Indeed, in many cases, such evidence will actually be explicitly endorsed in the filing, by the attachment of a Form W-2-- remember, a filer is testifying to the accuracy and truth of everything accompanying a 1040.) In other words, a typical filing of this type will declare, "I acknowledge (or let stand unchallenged assertions of) being paid "wages as defined in 3121(a) of the code" (and/or similar declarations as to the receipt of "wages as defined in 3401(a) and/or proceeds from a "trade or business"); and yet simultaneously deny that I had any "income" and demand a refund of a large portion of what was withheld.”
Even the filings of certain adherents of the '861' misunderstanding who have actually come to a partial understanding of the purpose of the Form 4852 are just as fatally flawed, amounting to nothing but a more nuanced self-contradiction, due to a superficial avoidance of one of these errors. Because the other error stands, the benefit of that superficial relief is legally nullified, and the filing as a whole is just as compromised as those suffering from both errors overtly. To the administrators of the “income” tax scheme as it really is, filings of either variety constitute deer-in-the-headlights-class red meat. (The self-contradictory aspect of these filings meets the requirements of 26 USC 6702(1)(B); and the typical attachments arguing the '861' or 'corporate-profit' positions, which those who file these returns are encouraged to deploy, make it easy for the government to characterize them as meeting the requirements of subparagraph (2)(A) as well-- thus, these filings are ripe for 'frivolous filing' treatment. For more on this subject, visit www.losthorizons.com/tax/misunderstandings/map.htm.)
In short, Schiff- and 861-style filings actually ARE "frivolous", and the tax agencies are well within the relevant provisions of law in disregarding those filings and proceeding accordingly. On the other hand, look at the nonsense to which the IRS is reduced in trying to give the impression that it can disregard filings made by CtC-educated Americans discussed here and here.
In fact, the IRS admits that CtC-educated returns are often routed to special scrutiny divisions at the IRS-- indeed, the 'service' testified to this effect in affidavits filed by the government in its PR "lawsuit" against my wife and me. However, as I pointed out in my responsive filing back in September of 2006, the end result of that special scrutiny is the issuance of the refund:
One final note related to "Schiff" (and similar) filings-- those who have been persuaded to take such a course in the past should understand that when a return has qualified as "frivolous" (or otherwise unprocessable), it is treated as though never filed. Consequently, any subsequent filing for the same period will be viewed as an original return by the tax agency, not a replacement, or amendment. The same is true in cases where the tax agency has presumed to file a "substitute for return" (or acted as though it had authority to do so). Such "SFRs" have no legal stature relevant to the person with whom they purport to be concerned, and when and if that person files an actual return, it will be an original return, not an amending return-- the "SFR" notwithstanding (see here for more on this). |
Q. In 'Cracking the Code-...' you express the opinion that when one submits a copy of an original 1099 with the 'corrected' box checked and erroneous information replaced with one's own testimony, language should be added to the copy over a signature. Why is that?
A. As is the case with all documents filed for tax purposes, a key object of the exercise is truthful and accurate testimony. The addition of a concise summary of what is meant to be understood by the rebutting document serves that purpose (and may well be necessary to its achievement); such a summary also makes clear that the document is not, and is not intended to be mistaken for, a corrected form produced by the issuer of the original 1099 (or other such form, such as a 'K-1'). A sworn signature under that summary firmly establishes its testimonial and evidentiary nature. An example of such a concise summary can be seen here.
It is important to keep in mind that the rebutting forms are submitted simply as answers to the assertions of whoever issued the erroneous original form, and the addition of a summary and signature are not for the purpose of proving anything. Indeed, in principle, it should be enough to simply scrawl, "Not so!" across the body of the form, with a jurat beneath. Still, as I have said, I feel that adding the summary is important, primarily in order to make clear that what is being attested to by the original form is understood, and is being specifically rebutted.
Q. The IRS says I have to file a Form 1096 in order to file a corrected 1099. Do you think this is true?
A. Form 1096 is a form used exclusively by the original issuer of a 1099, for the purpose of transmitting the 1099(s) under oath-- whether original versions, or those which the same original issuer has decided need correcting. It is not a form related to the submission of an affidavit "correcting" (which is to say, rebutting) an erroneous 1099 by the recipient of the erroneous form-- even when such an affidavit makes use of the originally filed document as a base in order to ensure that all relevant information is included. It is important to understand this distinction. When the recipient of an erroneous 1099 rebuts the faulty evidence this way, he is not filing what the IRS would call a "corrected 1099". He is filing what would more properly be called a "correcting 1099".
The distinction is similar to that between a Form 4852-- which is intended to be used by the recipient of an erroneous W-2 (among others)-- and a "W-2c", which is a form exclusively for the use of whoever originally issued an erroneous W-2, in order to correct the errors that same person made on the original.
By the way, I'll take this opportunity to point out that the ONLY kind of 1099 to which a Form 4852 relates is a "Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc."
Q. Congratulations to you! It's how it's suppose to be! I do have a question. Using [your] method, are we suppose to send along the old W-2 along with the 4852 to the IRS? Thank You. A. I do not have, or offer, a "method". I merely point out what the law says. Thus, if there is any "method" being revealed, it is one designed by Congress. As for the question about W-2 "information returns": First, each person must of course determine for himself or herself what properly belongs in his or her own filing-- which is, after all, the testimony/evidence of that filer. That being said, I will point out that in making testimony and/or submitting evidence of any kind-- and for any purpose-- consistency and coherence are clearly very important; and that everything which is submitted with a filing-- even things prepared by others-- is presumed to be being attested to as true, complete and correct by the filer. Testimony or evidence which contradicts itself, with one document saying one thing and another something to the contrary-- as regards the amount of "wages" paid, for instance-- is worthless, or worse (because it meets the statutory definition of "frivolous").
Furthermore, it
Interestingly, requesting the submission of a W-2 from a filer who has already testified as to the partial inaccuracy of that very instrument by way of a correcting/rebutting 4852 is becoming one of the increasingly common revealing ploys attempted by tax agencies in response to educated, inconvenient filings. In this effort, the agencies try to suggest that they are unable to verify amounts withheld without the submission of a W-2 by the filer. This is a truly audacious lie, as these agencies will have already been furnished with matching testimony about amounts withheld on both the original W-2 sent to the agency by its creator AND the responding filer's 4852, meaning that the amounts withheld have already been established as uncontroverted legal facts. However, since that reality and the other legal effects of a proper, accurate filing impose unwelcome obligations on the agencies, they seek to persuade the filer to let them off the hook by compromising his or her own testimony... Q. Is there any way of acquiring what the IRS has on file as having been reported to them Past and Present regarding Fed W/H, tax, SS, FICA, etc? My concern of course is putting correct numbers of withholdings on the corrected 1040's and 1099's and it's entirely possible, especially in cleaning up past years, to inadvertently omit a w-2 or 1099 here or there, etc... Thanks A. Form 4506-T is the request form to get copies of both return and "information return" records in the IRS files. See the link at the bottom of this page. |
Q. As understood, the 7.65% withheld from my earnings is only half of what is paid to the U.S. Govt. on my behalf for SS tax. Is this true, and, if so, to whom does the other half belong? Is it mine as unreported compensation or some such or is it really a tax on the business/employer? Self employed folks pay the full 15+% I believe and therefore, may recover the full amount. What about the others of us? Thx A. Please see pages 77 - 81 of CtC Q(2). Pete, I understand the "income tax" part and the amount shown on form W-2 is extracted and refundable. But what of the 'other half'? It is not declared on the W-2, how can one reclaim what is not declared? That is the question. Thx A(2). You must bear in mind that SS and Medicare are just "income" taxes like any other. The money extracted from a company for the privilege of (theoretically) being an "employer" is measured by the "wages" paid to each "employee", but that money has nothing to do with the person whose "wages" invoke its remittance. It does not belong to that "employee", or go into an 'account'. It is a general revenue item. The company-paid 7.65% should simply be viewed as an "employer" "income" tax.
Q. Are Social Security 'benefits' "income", and will claiming refunds of Social Security "income" taxes make one ineligible for the related benefits upon reaching retirement age.
A. Social Security receipts (benefits) are as unquestionably "income" as anything could be. Not only are they, when all is said and done, merely welfare payments; but eligibility for most recipients arises due to (theoretical) performance as a civil servant (the fact that this is a charade in most cases notwithstanding); and they are paid directly out of the federal treasury. Quite properly, they have their very own line on a 1040.
However, the rule for 'vestiture' in the program appears to me to operate independently of any presumptive nuances. That is to say, nothing that I have seen in the language of the law suggests that receiving the 'benefits' is dependent upon one's status, either at present or in the past-- despite the fact that one's obligation to pay the tax in the first place is/was so dependent. Once 40 quarters of tax paid have been credited to one's "account", I can see no reason or provision of law which would preclude one from claiming Social Security (this without getting into the fact that there is actually no legal relationship between the "quarters of contributions" and a claim on the benefits-- see below). Of course, if one were to claim refunds such as to cause one's "account" to fall short in that regard, one might not "qualify" under the current, entirely arbitrary, standard.
(On a related note, it is important to bear in mind that pensions of any kind-- and I refer here primarily to real pensions in which the pensioner has an ownership or contractual interest, but what follows is true even of illusory varieties like Social Security to some significant degree-- are legally considered "deferred compensation". As such, they are considered to have the exact legal character as the compensation paid concurrent to the rendering of service to which the pension is connected. That is, IF the contemporaneous compensation actually IS taxable, then the deferred compensation also will be.)
Q. Don’t workers who have Federal Insurance Contribution Act (FICA) taxes withheld from their pay become “recipients of federal benefits” (and therefore taxable), since this entitles them to Social Security?
A. No. First of all, one is not a “recipient of federal benefits” until one actually “receives the federal benefits”. (And, of course, even if one were already "receiving the federal benefits", only those measurable benefit receipts would be taxable. The fact that certain of one's receipts are taxable does not make one's other receipts taxable.)
Second, contrary to the deep-seated misunderstanding of Social Security which is carefully nurtured by the beneficiaries of the overall “income” tax scheme, no one becomes “entitled” to Social Security by making ‘contributions’ (or any other way). Thus, even a (necessarily tortured) argument that vestiture in a future benefit constituted an "income"-taxable activity would not apply to Social Security, because no one is legally vested with a claim against the program.
The fact is, there is no legal relationship between the tax taken under the FICA and any benefits one might be given under the same act. When Social Security is called an “entitlement”, the reference is to a merely political deal-- those in Congress recognize that it would be political suicide to stop giving money away to (especially) seniors under the mantle of the FICA, and so the recipients of those handouts are “entitled” to rely on them continuing into the foreseeable future. The FICA simply imposed another tax on "income", measured by remuneration paid to a particular group of federal workers (defined in section 3121).
(This class of remuneration was given the title of “wages", more particularly, FICA "wages", and is distinguished from the “wages” defined at 26 USC 3401. 3401 “wages” make up a broad and inclusive class (remuneration paid to all federal workers), within which is the subclass of FICA “wages”. That is, all federal worker’s pay qualifies as 3401 "wages", but only some also qualifies simultaneously as 3121 "wages", and is used to measure the additional "income" tax.)
All that should be needed to make this clear is to consider that, if there were a legal entitlement, once someone had reached nominal "full vestiture" -- that is "40 quarters of contributions" (per the current arbitrary qualification)-- one would be finished making "contributions". If there actually was a contract involved, that would be the point at which the "contributor" would have satisfied his or her side of the bargain, with nothing more to do but wait until the payouts began. In case more is needed than that simple and straightforward logic, here is what the United States Supreme Court says on the subject in Helvering v. Davis 301 US 619 (1937):
...and in Flemming v. Nestor 363 US 603 (1960):
The court explains, also in Flemming v. Nestor, that:
It's that simple. There is no legal relationship of any kind between taxes withheld under the auspices of the FICA, and the receipt, or possible future receipt, of Social Security benefits-- and this is true even for those whose earnings really are "wages" as that term is defined in the law.
Congress could end Social Security payouts tomorrow, and no matter how many quarters of payments someone may have made, he or she would have no legal recourse by which to demand benefits. No one has an account at the Social Security Administration, in the sense of a reserved or claimable interest in any benefit. That the administration (or Congress) has elected to use "quarters of payments" as the nominal qualifier for receiving payments from the program is just the scheme de jure-- it could as easily be any thing else, and with just as much relationship to the benefit (from a legal standpoint) as the current scheme-- that is, none whatsoever. The designers of this tax simply settled on marketing it as though it were an insurance program, both to make it more immediately palatable, and to help create a constituency which would defend it in the future with the vigor attendant upon an imagined “ownership” interest. Without violating to the slightest degree its legal obligations under the Social Security Act or by virtue of the taxes it has collected under the name of "Social Security or Medicare contributions", Congress could announce tomorrow that benefits would henceforth be based on how many blue Volkswagens an applicant or current beneficiary had owned in the past (or owned now, for that matter).
Indeed, in 26 USC 86- Social Security and tier 1 railroad retirement benefits (a section within the "Items Specifically Included In Gross Income" part of Subtitle A), Congress must artificially designate Social Security benefits as to be treated as pension or annuity payments, for purposes of certain other sections of law, since such benefits don't actually qualify as pension or annuity payments inherently.
(Social Security numbers are merely a creative element of this scheme, by the way-- being nothing more than a number under which qualifying "quarters" are recorded, but suggesting to the gullible the existence of a personally-owned numbered "account" financed by the FICA tax "contributions" extracted. However, as noted above, having such a number associated with oneself creates no ownership interest in any future benefits, nor does it have any legal affect on the character of one’s earnings-- that is, it does not make earnings, which otherwise are not, into either 26 USC 3121 “wages” or 26 USC 3401 "wages".)
***
Further, look at what the IRS has to say to those federally-connected entities making payments to persons whom they have no reason to believe have ever been associated with a Social Security number:
Note the revealing qualifier in the language above: "Begin backup withholding immediately on any reportable payments." The issue is the nature of the activity in connection with which the payment is made (which is typically presumed to be a "taxable activity" when the payor is-- or is presumed to be-- a federal entity)-- NOT whether or not the payee has (or has furnished) a Social Security number.
***** Think about this as well: A Social Security number is assigned to most people as a minor, if not at birth, by action of another party (a parent, usually). There is no provision in law for expunging the number, its assignment, or the records associated with it by the government (in the sense of simply wiping them all out because the individual involved wishes them gone). Does anyone really imagine that a minor child can be thus made irrevocably subject to a tax-- or any other legal consequence or effect? This is absurd.
Further, let's not forget the decades of implementation and enforcement of the "income" tax before the institution of Social Security and its numbers in the late 1930s...
The simple and sordid reality is that to the extent that it is not just a tax-agency seeding of the "tax honesty" community with deliberate distractions and disinformation, notions about the "income"-tax-related significance of Social Security numbers are just erroneous "theories" in search of facts, rather than facts being considered in the formulation of legitimate theories.
*****
P. S. The fact that a payor may have an EIN ("Employer Identification Number")-- or that such a payor's payee may use such a number to help identify the payor-- is also immaterial to the issue of the "income" tax, as regards payments made to another. Although only actual "taxpayer" entities need such numbers, they are used for several purposes not necessarily involving "employment", "employees", or activity as an "employer". This is pointed out in the Internal Revenue Manual:
Needless to say, what a payor chooses to believe to be true about itself does not establish anything as true about anyone else, even someone who uses an applied-for and assigned "EIN" in identifying that payor. If your neighbor informed you that he was known to the town council as "The Queen of Sheba", and you, having occasion to do so used the title when communicating with the town council, your neighbor would not thereby become the Queen of Sheba. Nor would you become a Sheban (or whatever) simply using that title, or by virtue of doing business with your eccentric neighbor...
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NOTE: Some are allowing themselves to be misled or distracted in regard to this subject by references to federal-retirement-benefit-vestiture within certain statutes, such as that at 5 USC 552a:
(which is, by the way, just a "this section only" specification relating to federal authority to keep records...). Being shown the terms "entitlement" and "retirement benefits", they imagine that this language constitutes evidence that Social Security is an "entitlement" in a legal sense. However, the programs referred to are not Social Security and Medicare, but rather are the "retirement program(s) of the Government of the United States" (provisions of which can be seen elsewhere in the same title).
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On another front, general misunderstanding of the true nature of Social Security, and of the context and meaning of language such as that in 5 USC 552a(13) is being abused with the promotion of the bizarre proposition that anyone having Social Security "income" taxes extracted from them are therefore "federal personnel", (and therefore are properly subject to the tax, in an interesting example of circular reasoning...), or are electing to be considered as such. That is, the misunderstanding of Social Security to be a legal entitlement is exploited to suggest that the reference in 5 USC 552a(13) to those "entitled to receive immediate or deferred retirement benefits" should be read as including people who have paid Social Security taxes (and are therefore imagined to be vested in benefits under the program). Then, goes the argument, since the subparagraph defines "federal personnel" as those "entitled to receive either immediate or deferred retirement benefits" (a class to which it is to be imagined those who have paid Social Security taxes belong), everyone who has paid Social Security taxes belongs, Presto Change-O!, to the class "federal personnel".
The "argument" concludes with the proposition that THIS is the clever mechanism by which Americans are made subject to the "income" tax (without any effort to address the fact that it is not merely "federal personnel" who are actually so subject, nor even are "federal personnel", except insofar as they engage in taxable activities). To describe the reasoning is to make clear its illegitimacy.
Much as was done by with the abuse of the language of the first half of Treasury Decision 2313 to push the "861 argument", this distraction relies on its audience not verifying its assertions, and thus not noticing that the immediately preceding subparagraph of the very same section of statute DOES reference mere welfare programs such as Social Security. That subparagraph specifically denominates programs of this sort as "federal benefit programs", distinguishing them from "retirement programs of the Government of the United States" (and without any references therein to "federal personnel" ):
Although it is not necessary to further illuminate this distinction, elsewhere in the same statute a competent researcher will find language clearly doing just that, such as the following subparagraph of 5 USC 552a(o)(1):
(For more on this subject, see www.losthorizons.com/SSNs.pdf.)
Q. If we are "presumptively" receiving federal wages or salary... Then why do Federal Civil Service Workers have different benefit plans than we do? Why are there other differentiations also? I could go on but you should get my drift from what I've asked above.
A. The CSRS and FERS apply only to specifically defined "employees", just as does SS. Look at 5 USC 8331 as an example. (This response maintains the context of the inquiry, and disregards the fact that for most Americans, the "employee" designation is merely a pretext and a subterfuge.) |
Q. Are privileges which are granted by a state, such as the special treatment under state law enjoyed by a state-chartered corporation, among those taxable under a federal excise tax?
A. Short answer: No. Authority extends to one's own property and one's own creations, not those of others. I will grant the possibility that one entity might cede a measure of authority over its own creation to another, but that this has been done, such as in the case of a state-chartered corporation, for instance, would have to be clearly demonstrated. It would not be an easy thing to do in the case of an entity such as privately-owned, merely state-chartered artificial entity, for ownership/authority in such an entity really doesn't belong to the state, and what authority the state DOES have is only as specified by law, and as knowingly agreed to by those forming the entity. That is, for the federal government to acquire authority over a state corporation, provisions for that authority would have to be clearly laid out in the state-corporation-chartering language, such that the citizens who are seeking the state charter are clearly informed of the arrangement to which they would be agreeing.
(Further, even if such arrangements WERE properly in place, the earnings, receipts or revenues of the corporation would not automatically therefore become "income", by the way. They would only be "income" if they were a consequence of the corporation exploiting federal powers, privileges or property; and this is true of any corporation or entity of any kind. It isn't the nature or status of the actor that matters, it is the nature of the act.)
It is worthwhile in considering this subject to remember that the privilege being sought and furnished in such a case is that of special treatment by the chartering jurisdiction. If a corporation were to seek out a grant of privileged status by another jurisdiction, it would certainly open the door to taxation by that jurisdiction, but a foreign jurisdiction cannot simply declare that special treatment is on offer for all corporations of whatever origin, and therefore all of their activities are subject to the foreign jurisdiction’s taxes, whether those activities are connected to (or conducted within) that foreign jurisdiction or not.
The law reflects these principles. Read through the Corporation Excise Tax Act, where the class of corporations to which the tax is applied is clearly identified. Indeed, simply read through the instructions for Form 1120s, U. S. Income Tax Return for an S Corporation and those for Form 1120f, U. S. Income Tax Return of a Foreign Corporation, taking note of what is actually taxed in regard to these representatives of the class. (See www.irs.gov/pub/irs-pdf/i1120s.pdf and www.irs.gov/pub/irs-pdf/i1120f.pdf.)
While we're on this subject, by the way, a few words about what is, or can be, an "S corp" are in order, since there appears to be some confusion on this subject. Many appear to imagine that "S corps" are something other than just an idiosyncratic, special-purpose version of a "C corp". However, an "S corp" is defined as follows:
Thus, only a corporation "organized in the United States or under the laws of the United States or of any State" is capable of being or becoming an "S corp"-- the desires, intents, declarations, elections and misconceptions of its stockholders notwithstanding. (That is, there is no such thing as an "S corp" of one of the several Union States. If necessary, see 'The Code Is Born' and '"W" Is For Weapon' in CtC for a review of language relevant to the meaning of "the United States or of any State".)
(Furthermore, among the methods of terminating an election to be an "S corp" is simply ceasing to be a "small business corporation":
So, if a corporation is not, in fact, a "domestic" corporation as defined above, an election for it to become an "S corp" is terminated as soon as it is made...)
(See www.losthorizons.com/tax/faq2.htm#NaturalVersusArtificial for additional material on this topic.) |
Q. What are the legal statutes of limitation, if any, for filing a corrected federal tax return? If open ended, could that mean all previously filed returns by someone engaged in private sector activities are fair game? A. First, understand that the phrase "corrected return" is likely to contribute to poor communication, or fuzzy thinking. To clarify: The first return filed by the individual with whom it is concerned is an "original return", no matter how late it is filed. Any subsequent return filed concerning the same period is an "amended return", not a "corrected return".
(However, if the "original return" filed was actually invalid-- as opposed to merely declared "frivolous" in the sort of IRS ploy discussed here-- the filing will be considered a legal nullity, meaning that the return will not be considered to have ever been filed at all. In such cases, the first subsequent return filed by the same individual will then be the "original return"-- and should be done on an "original return" form... See the discussion of Schiff- and "861"-style returns elsewhere on this page for examples of actual invalid filings.
In the same vein, it will be important for many to understand that a nominal "Substitute For Return" (SFR) which the IRS may use in regard to a normal annual filer IS NOT A RETURN. See 'About 1040s And Claiming Refunds' in CtC, and the following from a GAO response to an inquiry by Senator Daniel Moynihan:
Even after a SFR is alleged to have been created, the first return filed by the person concerned is still the original return, and should be done on an "original return" form-- not an "amended return" form.
*See background on CtC Warrior Mike Cabirac's TC case, and his subsequent victory for the rule of law, here.)
As to the "statute of limitations", it is certainly not "open-ended" regarding claims for the return of property (see the Digital Appendix for the relevant statutory text). Summarizing that limitation as practically applied, the statutory look-back period can best be thought of as running for three years beginning (that is, running back from) the day a return would have been considered required (without consideration as to whether one could properly have been "required" in any particular case at all). For instance, in order to claim the return of property withheld or paid-in in 2003, the return making the claim must be filed no later than April 15, 2007 (or August 15, 2007 if an application for extension had been filed by April 15, 2004).
The following language will help illuminate this: "Internal Revenue Code §6511(b)(2)(A) imposes a ceiling on the amount of credit or refund to which a taxpayer is entitled as compensation for an overpayment of tax: "[T]he amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return." 26 U. S. C. §6511(b)(2)(A)." Baral v. United States, 528 U.S. 431 (2000) (Emphasis added.) and: “Under 26 U.S.C. § 6511(b)(2)(A), Ehle may obtain by refund only those taxes paid within the three previous years. Under 26 U.S.C. § 6513(b)(1), any amount withheld from wages is deemed paid on the April 15th following the close of the tax year. Because Ehle's refund claim was filed more than three years after the amounts withheld in 1969-71 were deemed paid, the claim is barred by section 6511(b)(2)(A).” Ehle v. United States, 720 F.2d 1096 (9th Cir. 1983) (Emphasis added.) (Note: At least two federal district courts have held that the look-back period is actually six years in the case of claims for the return of property which was not, in fact, paid-in as tax-- which would be true of anyone who had never characterized the receipts from which the withholding was done as being "income" by declaring it to be so on a return.
For instance, in Wachovia Bank v. United States, 95 AFTR 2d 2005-817, a Florida district court held that under certain circumstances a refund of erroneously paid taxes can be claimed for up to six years following payment, interpreting the three year statute of limitations (codified at 26 USC 6511) as only applying when a return was actually required. The court held that when a return was NOT required, the more general six-year limitation on civil actions against the United States applies.
This ruling did not address the question of whether establishing that a mere allegation of the receipt of "income" in an amount above the filing-requirement threshold was erroneous will trigger this exception-- I suspect that the default position of even this court would be in the negative. Nonetheless, this ruling offers a good deal of support to an argument on that point, and has to be placed in the "thumbs up" column. See http://www.lavellelaw.com/newsletters/June-July2005.htm for a summary of the case.)
In light of these statutory look-back provisions, returns claiming refunds of amounts withheld or paid-in more than three (or at most six) years prior to the claim might well be called "frivolous" (as in, "having no basis in law")-- although NOT meeting the definition of "frivolous returns" subject to penalty under 26 USC 6702 for that reason.
NOTE: Lawsuits over amounts claimed for refund but not returned are subject to a two-year statute of limitations that begins running at the earlier of either the issuance of a formal "notice of disallowance" of the claim (with explanation-- see 26 USC §6402(k)) or after six months have passed without satisfaction since the filing of the claim (the 1040, etc.). See 26 USC §6532.
On the other hand, there is no statute of limitations of which I am aware on simply correcting the record. Thus, even when it is too late to claim a refund, there may still be a considerable benefit to filing, if one is being dunned for alleged, but erroneous liabilities and/or related penalties and interest. It is as certain as day following night that if the body of evidence on the record relating to any particular year were to change, any calculations, conclusions and claims being prosecuted by a tax agency based upon that body of evidence must also change...
Finally, another slight digression, as the subject of accuracy of terms related to this subject has already been broached above: While W-2's, 4852's, K-1's and 1099's are themselves technically 'returns' ("information returns"), clarity is best served by confining the use of the term 'return' to its conventional application, i.e. 1040's, etc.. |
A. An audit is an exercise of the "examination" authority, addressing on the accuracy and propriety of deductions, allowances, etc. that have been claimed on a return. When and if such options have been exercised, one can reasonably be required to defend them with related documents, receipts, and so forth; this is the essence of the audit procedure.
An audit might also properly contemplate a claimed exclusion of "income" (which means the removal of some amount of otherwise acknowledged "income" from further calculations on a return, per the application of a provision of law). However, it is important to understand that merely declining to treat as "income" something which does not qualify as such is not "excluding income", any more than declining to count one's oranges, when asked to declare the number of apples in one's possession, could be described as "excluding apples".
It is also worth noting that the "books and records, etc." that a tax agent typically demands be produced in connection with an audit can only be those books and records which actually relate to paid taxable activities engaged in during the period in question ("income" received), and/or deductions, allowances, credits, etc. claimed on a relevant return. Such "books and records" demands AREN'T demands to see material relating to earnings, receipts or anything else which DIDN'T involve taxable activities, or anything that WASN'T relied upon to claim a deduction, allowance, credit, etc. on a relevant return.
Misunderstanding the point above-- that the context of the "request" for records dictates the scope of its legitimate interest and authority-- has probably led many folks to inadvertently substantiate adverse presumptions. Many folks have doubtless responded to an audit by carting in records relating to all of their economic activity. Because of the context involved, everything brought in will be taken as being declared by the presenter to be "taxable activity"-related. Otherwise, why bring it in for an examination (or in response to a summons) that can only concern such activities, and no others?
This leaves unaddressed the more basic issue of who is obliged to attend to the unwarranted command of some bureaucrat in the first place, of course. Anyone being told that they must submit to a summons or audit might be interested in the material at 'Responding To The Assault' as well, which discusses the very clearly and narrowly defined classes of filers who can be lawfully subjected to such examinations.
Q. What is an appropriate response to a notice of lien or levy?
A. Presuming that we're talking about only collection activities which are predicated on erroneous evidence-in-the-record, a proper and necessary first step would clearly be to rebut or correct that evidence-- the particulars of which should be available from the collecting agency-- in the manner provided for by law. (Collection activity based on valid evidence, of course, is an entirely different matter, and not one which will be addressed here.)
Getting the collecting agency to acknowledge and lawfully react to such rebuttals and/or corrections is obviously an element of that first step, and doing so should make that first step the only step, in most cases (see various case studies here). However, in any case in which "collections activities" appear to be occurring after lawful, accurate, educated returns have already been properly filed, the REAL first step is to determine what's actually going on. A careful read of this page, this page and this page (including linked pages where indicated) will help in this regard.
Q. Can a levy only be made on "officers and employees, etc." of the federal government?
A. A levy can be made, by means of a proper judicial process, upon anyone who actually owes a tax debt. However, a levy can be made by way of a mere "Notice of Levy"-- which is to say, more-or-less unilaterally by the IRS-- only upon the "wages or accrued salary" of "officers, employees, etc.". The relevant language (from 26 USC 6331(a)) is as follows:
Levy can be managed by mere "notice" in these cases due to the fact that a "levy" is the bringing of property into the possession of the levying authority, and the property involved in a levy upon "the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia" is ALREADY in the possession of the levying authority (the federal government). It simply hasn't yet been paid out to the levied party. As a consequence of that fact, the only aspect of "levying" needing to be done in such cases is the administrative reassignment of the property from the status of "owed to the worker" to "seized (levied) by the Secretary". The "Notice of Levy" is just what it says: Notification that the property has been levied by this administrative mechanism. Property not so situated can only be brought into the custody of the Secretary by means of an entirely different, much more circumscribed-- and properly adversarial-- process.
(For more on this subject see 'A Sorry But Instructive Little Subterfuge', and for the law regarding the application of the levy power by other means, and in general, see 'Regarding The Levy Power'.) |
Q. What is a "Proposed Individual Income Tax Assessment"?
A. A request... Remember, other than in the case of taxes payable by stamp, the assessment authority extends to taxes shown on a return (either one made by an individual, or by "the Secretary"):
This language doesn't mean, "the Secretary shall assess all taxes of the sort about which returns are made". What it means is, "the Secretary can't asses any tax (other than those payable by stamp) unless and until it is shown on a return". A document is not a "return" (in the sense meant here) unless it is subscribed (signed) under penalty of perjury, and reflects the true, complete and correct knowledge and belief of the signer. So, unless and until there is a sworn return declaring the receipt of "income" beyond the exemption amount, no actual assessment (the application of the appropriate rate of tax to the "income" shown on the return) can be made. A "Proposed Individual Income Tax Assessment" is basically just a request for someone to self-assess by filing a return. (Please review the detailed discussion of this subject in 'About 1040s And Claiming Refunds'.)
By the way, that no lawful assessment can take place in the absence of a legitimate return doesn't mean that declining to file stops everything in its tracks. The filing protocols are the equivalent of a judicial process in many ways. Failing to testify (file) means allowing other testimony, such as that of payers who allege payments of "income", to be established as fact in the eyes of the law. Presumptions supported by those allegations can then be made in good faith, and will be-- including some that could permit "the Secretary" to invoke his limited authority to make returns. Things can be expected to proceed forward accordingly. In short, silence is a bad policy. |
Q. What is a "statutory employee"? A. 'Statutory employee' is a status distinguished from 'self-employed'-- both of which are assignments made within the context of "income" recipients. That is to say, the IRS distinguishes "income" earners ("service" performers) into two groups: Those considered to be working for someone else (statutory employees) and those who work for themselves (self-employed). To be categorized as a "statutory employee" does not mean that you had not been being thought of as a federal worker but now are-- it just means that the system has decided that you fall under one "income"-earner-federal-revenue-protocol rather than another.
By the way, this is a good place to point out that there are two different definitions of "employee" to be found in Subtitle C -- one for the general withholding protocols found in chapter 24, and another associated with the 'FICA' (Social Security and Medicare) structure. These terms are quite distinct from each other, due to the fact that the "wages" defined in each of the two chapters hinge on two different related terms-- "employee" in chapter 24, and "employment" in chapter 21. Because of this distinction, "employee" in chapter 24 (on which that chapter's "wages" definition hinges) is narrowly defined as the class of those working for federal entities:
whereas the definition of the term "employee" in chapter 21 (in which the meaning of "wages" is delimited by the definition of the term "employment", rather than "employee") contains language as broad as:
For more on the difference between each of these categories of "wages", see 'Withholding The Truth' in CtC, and the entry on "Social Security" above, as well. |
