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. Click here for more on this.
If needed, click here for a brief review of the truth about the income tax.
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):
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. READ EVERYTHING THAT FOLLOWS-- don't imagine you know where I'm going with this at any point...
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 federal 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.
Further, there are hundreds and hundreds of complete return packages filed by other educated Americans posted on the "victory" pages along with the refunds which resulted. Anyone wondering about the particulars of such filings can view ten or fifteen of these and end up with a very good sense of what's involved. I have also posted a compilation of observations I made over the years concerning good filing practices here.
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 report 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.
Remember that rebuttals are only needed when an allegation has been formally made by way of an "information return" (that is, by way of a W-2, 1099-XX, K-1 and so forth). That is, there's no reason to do a special form to rebut something that hasn't been formally alleged. Consequently, most folks will find that they have merely three types of forms relevant to their circumstances: A 1040 (if an original filing is being made, or 1040X if a previously-made filing needs amending); and either 4852s for rebutting erroneous "wage" allegations and/or copies of 1099s sent to them (and about them) to use as background for rebuttals when the originals are erroneous (see topics below for more on this). Usually, that's it.
(On the other hand, it is also important to remember that rebuttals MUST be done for ALL "information return" allegations which one cares to dispute. Silence in the face of such allegations will be taken to be acquiescence to whatever is alleged, even if the errant IR is not attached to one's return.)
REGARDING PROFESSIONAL SERIVICES: 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.
For some discussion of the steps and resources involved in suing the creators of erroneous "information returns" to recover damages for the time and trouble of correcting their mistakes, and to deter bad behavior in the future from them and others, see this.
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. What is withheld and paid over to (or put in escrow by) the feds must be claimed from the feds; what is withheld and paid over to (or put in escrow by) a state must be reclaimed from the state, and each with a full-scale filing as indicated under its own statutory structure.
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.)
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'.
It is also important to understand that EVERY refund that issues has already been heavily vetted. Contrary to self-serving myths promoted by the IRS and its fellow-travelers to keep you from grasping the evidentiary significance of CtC-educated victories, all filings claiming refunds (not just CtC-educated filings) are challenged by default. As the Taxpayer Advocate Service of the Department of the Treasury describes it in its 2013 Annual Report to Congress:
The return integrity process is complex and multifaceted. A tax return must travel a long path with many potential roadblocks before the IRS accepts it as filed. The main goal of IVO is to stop fraudulent refunds before they are issued by identifying potentially false returns, usually through wages or withholding reported on the returns. The IRS does this primarily with the Electronic Fraud Detection System, which was built in the 1990s. EFDS runs all individual tax returns through various filters to identify characteristics that may indicate a high risk of fraud.
See the report here.
In particular, ALL CtC-educated filings-- the vast majority of which show and claim a refund of withholdings-- ALL withholdings-- while showing no "income" at all-- have ALWAYS been scrutinized, both by the EFDS and the "Questionable Refund Program" before the returns have been processed and the refunds have been issued. The simple, glaringly-evidentiary fact is that every check and credit issued in response to a CtC-educated claim has passed through the gauntlet and been approved.
Harassment that a few folks have suffered in contrast to the norm of just quietly receiving a claimed refunds is just that-- harassment. It's corrupt, illegal (in my view), and shameful. (It is also ludicrous in its contortions, and has lately even descended to outright fraud). But it is not an expression of government challenge to what is taught in CtC.
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.
Indeed, unless a refund recipient can be cowed into "voluntarily" revoking his own claim to that property, and declaring a governmental claim to it, the government would be obliged to proceed by suit under 26 USC § 7405. Except for a unique 2006 affair discussed here and here, no such suit has been attempted in regard to a CtC-educated refund. Tens of thousands of CtC-educated refunds have already aged well past the statute of limitations for such suits (as well as for any allegations of "evasion", "false returns", "failure to file", etc., by the way) and more do each and every day-- all without any government action at "recovery" being attempted.
A. I think you mean a "rebutting copy"... Anyway, 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'). The sworn signature under that summary firmly establishes its testimonial and evidentiary nature, and again makes clear that it is a correction being submitted by the recipient of the original form, not its issuer. 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.
(It should be clear from the foregoing that under no circumstances should an information return one considers to be erroneous be attached to a filing, even if accompanied by a rebuttal. The filer is considered to be attesting to the veracity of everything attached to the return. Attaching bad information would contradict the rebutting information, and render the return a nullity. Further, of course, the tax agency to which the return is sent should already have a copy of the rebutted original.)
Q. Does a Form 1096 have to accompany a rebuttal of a 1099?
A. Form 1096 is a form used exclusively by the original issuer of a 1099. It serves to transmit the original or original-issuer-corrected 1099(s) under oath. It is not a form related to the submission of an affidavit rebutting an erroneous 1099 by the recipient of the original erroneous form-- even when such an affidavit consists of a photocopy of the original with numbers altered to reflect the rebuttals being made, as is typical of CtC-educated responses to such 1099's.
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.
A. 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 should be borne in mind that, other
than in truly unusual cases, any agency with which one
deals in regard to the "income" tax already has a copy
of any "information return" to which a filer is
responding. Since such "information returns" are
the key mechanism by which presumptions of liability
arise in the first place, those producing them are
typically instructed by statute to send copies to each
"income" taxing entity within whose territorial
jurisdiction they are located. As an example, here
is how the state of Michigan expresses this instruction:
should be borne in mind that, other than in truly unusual cases, any agency with which one deals in regard to the "income" tax already has a copy of any "information return" to which a filer is responding. Since such "information returns" are the key mechanism by which presumptions of liability arise in the first place, those producing them are typically instructed by statute to send copies to each "income" taxing entity within whose territorial jurisdiction they are located. As an example, here is how the state of Michigan expresses this instruction:
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...
If I were asked by a tax agency to provide an information return I considered incorrect, and had already rebutted under oath, I would respond by pointing out exactly those things. If I were asked to corroborate the withheld amounts claimed on my 4852s, 1040, or other forms, I would again point out that the agency does or should have the corroborating testimony of the payer(s) (or could and should get it from those sources). I might also include a year-end pay stub showing the withheld amounts, but with any erroneous material (such as declarations of "wage" payments) redacted.
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. See this.
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 (whether the tax is collected by the feds or by a state, as in a "state income 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 this and this.)
A. Good question, since there appears to be some confusion on this subject. Many 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:
26 USC 1361:
(a) S corporation defined
(1) In general For purposes of this title, the term “S corporation” means, with respect to any taxable year, a small business corporation for which an election under section 1362(a) is in effect for such year.
(b) Small business corporation
(1) In general For purposes of this subchapter, the term “small business corporation” means a domestic corporation…
26 USC 7701:
The term “domestic” when applied to a corporation or partnership means created or organized in the United States or under the laws of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.
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. 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":
26 USC 1362:
(2) By corporation ceasing to be small business corporation
(A) In general
An election under subsection (a) shall be terminated whenever (at any time on or after the 1st day of the 1st taxable year for which the corporation is an S corporation) such corporation ceases to be a small business corporation.
(B) When effective
Any termination under this paragraph shall be effective on and after the date of cessation.
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 this for additional material related to this topic.
If one has been paying oneself from proceeds of one's business, and erroneously producing "information returns" about those payments (whether 941s, 1099s, W-2s, all the foregoing, or whatever), such erroneous documents/allegations would need to be corrected. (NOTE: Corrected does not mean rebutted with Forms 4852, or copies of original 1099s with rebuttal statements added as is needed when someone is responding to erroneous IRs created by other folks. Here what is being spoken of are corrections by the original creator of the IRs.)
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
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...
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:
(Nor is it an actual "Substitute for Return"... You'll note that I referred to it as a NOMINAL "Substitute for Return".)
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.
In Phillips v. Commissioner, supra at 437-438, we held that a "dummy return", i.e., page 1 of a Form 1040 showing only the taxpayer's name, address, and Social Security number, was not a section 6020(b) return.
The mere fact that respondent's files contain information upon which a tax might be determined does not transform his files into a section 6020(b) return. See Cabirac* v. Commissioner, 120 T.C. ----, (2003).
The dates which appear on the numerous documents that respondent alleged to be section 6020(b) returns do not match; indeed, the date entries span several years. We cannot agree that this conglomeration of documents, which appears to be respondent's administrative file, would satisfy the requirements of section 6020(b) even if it were in evidence. See Cabirac* v. Commissioner, supra.”
United States Tax Court, Spurlock v. CIR, No. 6438-01, April 29, 2003.
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)
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)
(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.)
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 federal refund but not returned can be begun upon the issuance of a formal "notice of disallowance" of the claim (with explanation-- see 26 USC §6402(l)) if such a disallowance notice is issued, and must be filed within two years of that notice. Or, if no notice is issued, suits can be begun anytime after six months have passed without satisfaction since the filing of the claim (the 1040, etc.). See 26 USC §6532. Union states have their own statutes of limitation for the bringing of suits to compel refunds (which would be brought in state courts). Some are very brief-- as little as 18 months after the six months from the making of the claim or the issuance of a disallowance. If a claim is being evaded by a state tax agency, the frustrated claimant is advised to promptly check the appropriate state laws to ascertain the available window of opportunity.
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... See, for instance this experience of an educated filer correcting the erroneous 10-year-old record on which a levy had been based.
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.. (In the same vein, by the way, the various flavors of 1040s-- i.e. 1040x, 1041, etc.-- ARE NOT "information returns"...) Thus, call 1040s of any flavor "returns", and call W-2s, 1099s, K-1s ands so forth "information returns".
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. (See this for some related case-law.)
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 may be made 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, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official.
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.
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"):
26 USC 6201:
(a) Authority of Secretary
The Secretary is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title, or accruing under any former internal revenue law, which have not been duly paid by stamp at the time and in the manner provided by law. Such authority shall extend to and include the following:
(1) Taxes shown on return
The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title.
(The "lists" referred to are lists of "objects subject to tax", and will be disregarded here.)
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.
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 "service"-performance "income" earners 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 alleged to be a federal worker but now are-- it just means that the system alleges 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 of chapter 21. While the class of workers subject to the "wage"-related protocols of each chapter are the same, the "employee" definitions in each are quite different. This is due to the fact that the "wages" defined in 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:
For purposes of this chapter, the term “employee” includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term “employee” also includes an officer of a corporation;
whereas the definition of the term "employee" in chapter 21 (on which the meaning of "wages" in the chapter is NOT hinged, being controlled in that chapter by the definition of the term "employment", instead) contains language as broad as:
(2) any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee;
NOTE: Don't ever forget about this distinction! Corrupt elements in government and its courts have been known to conflate the broad language of the chapter 21 definition of "employee" with the narrow language of the chapter 24 definition of "employee" in an effort to falsely suggest that the "wages" definition in chapter 24 is controlled by both.
TITLE 26 Subtitle A CHAPTER 1 Subchapter B PART II § 85.
(a) General rule
In the case of an individual, gross income includes unemployment compensation.
(b) Unemployment compensation defined
For purposes of this section, the term “unemployment compensation” means any amount received under a law of the United States or of a State which is in the nature of unemployment compensation.
The pertinent language is "received under a law of the United States or any State..." A typical 'unemployment' check IS issued under a law of the "United States", being administered and financed per Titles III and IX of the Social Security Act of 1935.
Q. Isn't it important to address any inaccuracies that might exist in the IRS's Individual Master File (IMF)?
A. The static entries in an IMF, regardless of their accuracy, are not what is relied upon for presuming or establishing liabilities. Not only are such entries not sworn testimony, and therefore without legal standing, but the law does not provide for the use of such information in this way. What ARE relied upon for such purposes, and DOES have legal standing-- sworn "information return" allegations-- are addressed by a properly-filed 1040, etc., which simultaneously introduces into the record hard, sworn evidence pertinent to the sort of inaccuracies which might show up in an IMF.
For instance, Joe Smith from Toledo might be identified by an IMF code as being a Virgin Islander (erroneously, of course, and entirely unsupported by any evidence). However, one is not made subject to, or liable for, the "income" tax merely by being a Virgin Islander (or being inaccurately characterized as one); and, when Joe sends in his 1040, sworn-to under penalty of perjury and specifying his address as in Toledo, Ohio, it is obvious that the 'Virgin Islander' listing is rendered a nullity.
Erroneous information which might be reflected in an IMF (chiefly due to having let erroneous information return evidence stand uncorrected by a proper filing in the past) could well be used as a pretext to justify subjecting an American to administrative procedures which are not actually appropriate. But the solution to this is not to spend time and money fussing with the IMF. The solution is to ensure that the erroneous evidence in the record is corrected (while bearing in mind that each year is a free-standing legal event-- that is, what is or is alleged to be true about any one year has no legal implications for any other year).
However, those who really want to spend time on this can acquire their IMF by means of a FOIA request, and will find the IRS Master Codes (the translations of IMF entries) on the 'Cracking the Code-...' Companion CD.
Q. Are the dividends I get from ___, Inc. "income"? (Or my pension; or the alimony I receive, etc..)
A. The odds are good that no third party, myself included, is going to personally know anything pertinent about ___, Inc.; the legal circumstances of your home sale; or the provenance of your pension. Even if furnished with details, no third party could be confident of having received ALL the pertinent information. Hence, I will not attempt to answer any particular question of this kind.
However, having read 'Cracking the Code-...', you should understand the definition of "income" (a concise summary of which can be found here-- or see pp. 88 - 89 of CtC for a better one). Using that definition and understanding that deferred payments (like amounts put into any kind of retirement fund, whether called an IRA, a 401K or whatever), or dividends from an investment, or amounts drawn from someone else's receipts (such as alimony) all retain the legal character of their source, anyone should be able to answer such questions for themselves.
For instance, if funds being set aside for retirement are "wages" (as defined in tax law), then they retain that character and status relevant to the tax when distributed or pulled out of the retirement account for use. By the same token, if the funds set aside were NOT of a taxable character (whether denominated as "wages" or otherwise) them simply having been set aside for future use doesn't change that status. Thus, knowing the character of the originating receipts answers the question concerning the amounts set aside.
Similarly, a dividend paid from an investment in the exercise of federal privilege retains the taxable status of the activity from which the dividend is derived. Alimony extracted from taxable receipts is itself taxable. The reciprocal applies in both cases just as it did in the retirement fund example.
(However, it should be kept in mind that not everything that is taxable is taxed. Some deferred or diverted or investment gain payments which have an inherently taxable character due to the nature of their sources are nonetheless expressly exempted from tax under the law. Anyone who is receiving such payments should check the particulars for them before assuming they are subject to the tax.)
Q. Are goods and services (other than as an "employee" or "trade or business") that are sold to, and paid for by (or on behalf of), a federal agency, federal instrumentality, or federal (or federally-controlled) corporation "income"?
A. The taxability of any given receipt to the recipient is a consequence of the legal character of the associated activity engaged in by the recipient, not that of the payor. A simple rule of thumb might be as follows: If the sale of any particular good or service to a non-federal entity would not be taxable, then the sale of that same good or service to a federal entity would also not be taxable.
The converse would also be true: If the sale of any particular good or service to a non-federal entity would be taxable, then the sale of that same good or service to a federal entity would also be taxable. (The sale of services as a formal civil servant is, of course, an exception to this general rule-- regardless of the character of the services. See this for some related material. Similarly excepted would be any other economic exchange with the federal government in which the application of a tax to the objects sold or proceeds of the selling is an explicit condition of the sale, such as in the case of alcohol, tobacco and firearms excises.)
If, for instance, a plumber who is not a member of the civil service is called upon to do work for a federal entity (due to emergency and the immediate unavailability of a federally-employed counterpart, perhaps), there is nothing inherent in that relationship that makes the plumber's activity taxable. In this relationship, the plumber and the United States are just two independent economic actors making an exchange. On the other hand, an otherwise private business that secures property devoted to economic activity by way of an exercise of the federal power of eminent domain, or conducts economic activity through the use of land owned outright by the federal government, would potentially be taxable in regard to these activities ("potentially" because not everything that is taxable is actually taxed...), even though the activity conducted would be undistinguished from that of purely private competitors in every other respect.
Here's another way of saying this: If a thing can only be done because of the existence of the federal government-- not in the sense that it "protects us from the terrorists" or "prints money for us to use", but in the sense that one can only be given authority to lease property to a small business on a national railroad right-of-way because the feds claimed the territory in the first place and then gave you permission to do so, where otherwise you would have had to buy it from the descendant of some homesteader of the 1870s; or in the sense that one couldn't be paid to fix the plumbing of the Sam Rayburn office building as a G-4 without the fedgov being around-- that thing is taxable. What you could do whether the feds existed or not-- such as, fix your neighbors plumbing and get paid for it-- is not.
Similarly, a provider of services to a private-sector customer whose payment is merely facilitated by the federal government-- such as a patient whose payment to the provider is subsequently reimbursed by Medicare-- is not engaged in an inherently taxable activity thereby (while one who sells services due to, or involving, an agreement to seek reimbursement from the federal government on a patient's behalf, on the other hand, may be-- depending on the terms of the agreement). Again, while one may work for, and be paid by, an entity which is in turn, being paid directly by the federal government (or getting grants, etc.) this would not make the worker a "performer of the functions of a public office" if doing any given job which would go on being done without any federal involvement, as well. In such a case the beneficiary entity may have "received income", but the worker, who would be doing the same work with or without the federal grant or payment, is not.
Q. The IRS and its lackeys in the accounting and legal professions have posted a selection of court rulings which appear, at least, to address some of the "words of art"-related revelations in CtC, and categorize them as "Frivolous Arguments". What say you?
Q. Isn't the Post Office privatized now, and its workers no longer federal "employees"?
A. Although the PO undertook a big PR campaign in the 1980's which strongly implied that it was "going private", this was just part of a political gimmick intended to make a rate increase more palatable. The gimmick was to tout the PO as now financing its operations entirely with revenue generated by those operations-- in other words, paying its own way with its "own money". However, no actual "spin-off" took place (nor could it). Here are a couple of sections from 39 USC that make this clear:
39 USC Postal Service
§ 101. Postal Policy
(c) As an employer, the Postal Service shall achieve and maintain compensation for its officers and employees comparable to the rates and types of compensation paid in the private sector of the economy of the United States. It shall place particular emphasis upon opportunities for career advancements of all officers and employees and the achievement of worthwhile and satisfying careers in the service of the United States.
§ 1001. Appointment and status
(a) Except as otherwise provided in this title, the Postal Service shall appoint all officers and employees of the Postal Service.
(b) Officers and employees of the Postal Service (other than those individuals appointed under sections 202, 204, and 1001(c) of this title) shall be in the postal career service, which shall be a part of the civil service.
(c) The Postal Service may hire individuals as executives under employment contracts for periods not in excess of 5 years. Notwithstanding any such contract, the Postal Service may at its discretion and at any time remove any such individual without prejudice to his contract rights.
(§ 202 concerns the Board of Governors)
(§ 204 concerns positions of General Counsel; Judicial Officer; Chief Postal Inspector)
A. No they don't. They say they want to treat your return as though it is "frivolous", and by so doing, ignore its inconvenient evidence. The IRS has no more power to unilaterally declare a return frivolous than does your Uncle Ernie. The IRS is not a court-- it's not even a law firm. It's an accounting and collecting operation, with a distinct mission-related interest in convincing you to stand down and submit to its preferences. "Frivolous" is a statutory term with a very explicit and restricted meaning, as is pointed out in CtC on pages 180 - 182. To learn more about that meaning, and to see a detailed discussion of tax agency assertions on the subject, see this page.
If you received a questionnaire along with the agencies frivolous assertions, you might be interested in the discussion posted here.
A. This reflects a particular filing-related misunderstanding which hinders all too many members of the "tax honesty" community from acting to secure their legal standing by filing returns appropriately. Instead, these folks are bamboozled into silence-- and thus, self-imposed legal infirmity-- year after year. This debilitating refusal to act is based on the mistaken belief that the filing of a return-- particularly a 1040--, by itself, and without regard to the contents of the testimony thereon, constitutes the making of damaging admissions about the filer. I've discussed this subject a bit elsewhere, but perhaps it is time for a little elaboration.
I'll start by clarifying something for the benefit of those who have not actually read CtC, but have instead gotten what they imagine to be a sense of its lessons by way of the descriptions or explanations of others (which in some cases, at least, means from others who wish to discourage the reading of the book): What is taught about the law in CtC has nothing to do with any particular forms (or any particular formal procedures) as such. The discussion of certain treasury department forms in the book, such as 1040s, 4852s, etc., takes place not because these forms are integral to its message, but because the existence, nature and declared purposes of these forms help communicate that message.
CtC explains what is subject to the "income" tax, and why; how it is that much that is NOT subject to the tax is made to appear as though it were (and comes to be treated by the law as though it were); that there are, of necessity, remedies to the misapplication of the law; and why the whole subject is critically important. That part of the book which deals with remedies to the misapplication of the law discusses the basic principles of due process, and the inherent right of anyone being made the subject of a legal proceeding-- such as someone about whom tax-related allegations have being made-- to introduce his or her own testimony into the proceedings at a legally meaningful time and in a legally meaningful manner. The fact that the government itself produces and makes available instruments such as 1040s and 4852s by which this right can be readily exercised, and specifies the use of these instruments for this purpose, helps to make clear that this fundamental principle of law is fully integrated into the tax structure. That integration is not dependent on the existence of such forms, of course. One's rights remain fully intact, whether a ready means of exercising them has been helpfully provided by government or not.
Nor does the existence of forms like 4852s and 1040s limit or shape the right to testify. Such forms simply facilitate the exercise of that right. That is to say, one's right to testify is not dependent on the use, or controlled by the format, of some prescribed or pre-printed form or another. If erroneous testimony has been made on a W-2, for instance, the victim of the offense could rebut that testimony on a napkin or a piece of birch-bark with just as much fundamental legal significance as doing so on a "Form 4852", as long as all pertinent assertions are meaningfully addressed. The same is true of the broader testimony typically submitted by way of a 1040. There are only a few "rules" about the validity of a tax return: That the instrument purports to be a return; that it contains sufficient information by which a tax liability can be calculated; that it represents an honest effort to abide by the tax laws; and that it be executed under penalties of perjury. These simple requirements can be met without the use of a "Form 1040".
However, the practical utility of testimony submitted on napkins or birch-bark is pretty obviously compromised, in the sense that any bureaucratic recipient of such testimony will be unable to handle it in the routine manner. Further, and more importantly, the chances of any home-made version of a testimonial form actually comprehending all the aspects of the law to which it is intended to relate are remote. If this IS accomplished, the home-made form will end up being identical in every significant respect to the form being spurned, making the effort a pointless exercise.
To summarize, then: No aspect of the provisions of law involved in rebutting, or otherwise responding to, "income" allegations discussed in CtC rely upon, or inherently relate to, forms such as 1040s, 4852s, etc.. But when such forms are prescribed and provided, obvious benefits accompany their informed, accurate and truthful deployment.
Can Anyone Be Required To Accept A Legal Infirmity In Order To Exercise A Right?
It should be clear without extended explanation that under no circumstances can the exercise of a right be the occasion of the diminishment, or impairment, of any other right. For purposes of this discussion, this means that the exercise of one's right to answer the testimony of others about one's receipts, and to assert one's claim for the recovery of property put into the hands of a government against the possibility of the arising of a tax liability during the relevant period, cannot result, in and of itself, in any legal infirmity.
"...a statute which imposes a tax upon an assumption of fact which the [presumed] taxpayer is forbidden to controvert is so arbitrary and unreasonable that it cannot stand under the Fourteenth Amendment."
United States Supreme Court, Heiner v. Donnan 285 U.S. 312 (1932)
"...irrebuttable presumptions have long been disfavored under the Due Process Clauses of the Fifth and Fourteenth Amendments."
United States Supreme Court, Vlandis v. Kline, 412 U.S. 441 (1973)
"A fundamental requirement of due process is "the opportunity to be heard." Grannis v. Ordean, 234 U.S. 385, 394 . It is an opportunity which must be granted at a meaningful time and in a meaningful manner."
United States Supreme Court, Armstrong v. Manzo, 380 U.S. 545 (1965)
The exchange of evidence by way of returns (information returns and 1040s, etc..) IS the "meaningful time and manner" involved in the "income" tax, so much so that a $500 penalty can be imposed on someone about whom an information return is created by someone else, should that person fail to file a response. Further, the testimony of that information return will be taken as true even when doing so significantly disadvantages its silent subject.
So, no burden or punishment, either civil or criminal, can attend the exercise of one's right to testify by way of a tax return, with the sole and indirect exception being that the testimony submitted, like all testimony, must be affirmed under oath. The statutory structure provided by Congress fully complies with this fundamental legal principle, ensuring that timely testimony to whatever is true, complete and correct to the best of the knowledge and belief of the filer invites no adverse consequences whatsoever. (See 'Responding To The Assault' for some relevant discussion.)
Indeed, as has been pointed out on this page before, to attempt to burden, punish, prevent, discourage or even merely influence such testimony without direct personal knowledge of the matter being attested to, is criminalized-- as a misdemeanor at least, if not a felony. For instance:
Title 18 § 1512. Tampering with a witness, victim, or an informant
(b) Whoever knowingly uses intimidation, threatens, or corruptly persuades another person, or attempts to do so, or engages in misleading conduct toward another person, with intent to—
(1) influence, delay, or prevent the testimony of any person in an official proceeding;
(2) cause or induce any person to—
(A) withhold testimony, or withhold a record, document, or other object, from an official proceeding;
shall be fined under this title or imprisoned not more than ten years, or both.
(d) Whoever intentionally harasses another person and thereby hinders, delays, prevents, or dissuades any person from—
(1) attending or testifying in an official proceeding;
or attempts to do so, shall be fined under this title or imprisoned not more than one year, or both.
(The filing of a tax return, particularly one which involves rebutting the testimony of another filer, is every bit an "official proceeding"-- but even if doubts were entertained in that regard, the testimony made on a return is unquestionably relevant to, and anticipatory of, more formal judicial contests of several varieties, and Congress has thoughtfully provided that,
(f) For the purposes of this section—
(1) an official proceeding need not be pending or about to be instituted at the time of the offense;)
I'll say it one more time: However much some may have convinced themselves to the contrary, no criminal or civil penalty, loss of rights or property, alienation of citizenship or other civil diminishment, obligatory assumption of contract, or infirmity of any other kind whatsoever is, or can be, attendant upon the making of an honest tax return as a response to an information return created by another or to claim the return of one's property; rather, the precise opposite is true-- one or more of these ill effects can result from FAILING to respond. (See 'A Special Note To Non-Filers'.)
The above being true, is it possible that honest, good-faith use of a form prescribed by the Secretary of the Treasury for the making of a return, can, secretly or otherwise, impose or establish a criminal or civil penalty, loss of rights, alienation of citizenship or other civil diminishment, obligatory assumption of contract, or infirmity of any other kind whatsoever? Obviously not.
Is A 1040 A "Tax Return For A U.S. Individual" Or A "U.S. Tax Return For An Individual"? Does It Matter?
I deliberately included the expression "good-faith" in the last paragraph because a portion of those to whom these words are addressed do their mental stumbling over the issue of WHICH form to use, even if they recognize their unencumbered right to make a return. These folks have been convinced to forego the exercise of their rights by the proposition that the form they use in that exercise imposes upon them the status or legal characteristics of some class of persons which is bureaucratically intended to use that form. That is, if there is a class of persons of unique or specialized legal status known as "U.S. Individuals", for instance, and one uses a form specified as being for the use of "U.S. Individuals", one thus adopts the status (and related infirmities, if any) of a "U.S. Individual".
However, even if a form bore an unambiguous specification as to those for whose use it is intended, it's not that easy to change one's legal status, and, in any case, the law does not favor complicated and irrational presumptions over the simple and obvious. If one were to use a form intended exclusively for the use of some group or class to which one did not actually belong, all it would presumptively mean is that one had made a mistake. That the use of the wrong form is/was an inadvertent mistake would be self-evident if that use caused membership in a special group, attendant upon which is some legal infirmity to which the filer is not already subject. No one in their right mind would do such a thing, and one who did so, having self-evidently been ignorant of the legal import of their actions, would be relieved of the consequences of those actions. One cannot be bound by a legal process undertaken in ignorance of the consequences. If the mistake was not thus self-evident (because no ill consequences are attendant upon the use of the form), it would be readily established by declaration, if necessary, although I have yet to see a single case in which anyone has ever been accused, or even notified, of "Using The Wrong Form" in the fashion or context being discussed here.
As noted in the subtitle above, the intended use of the "Form 1040 U.S. Individual Income Tax Return is certainly not unambiguously confined to "U.S. Individuals"-- which is not, in any case, a defined category of persons-- even if it being so would raise one's hackles. Looking at the specifications for its use relevant to most Americans:
§ 301.6402-3 Special rules applicable to income tax.
(a) In the case of a claim for credit or refund filed after June 30, 1976—
(1) In general, in the case of an overpayment of income taxes, a claim for credit or refund of such overpayment shall be made on the appropriate income tax return.
(5) A properly executed individual, fiduciary, or corporation original income tax return or an amended return (on 1040X or 1120X if applicable) shall constitute a claim for refund or credit within the meaning of section 6402 and section 6511 for the amount of the overpayment disclosed by such return (or amended return)
(e) In the case of a nonresident alien individual or foreign corporation, the appropriate income tax return on which the claim for refund or credit is made must contain the tax identification number of the taxpayer required pursuant to section 6109 and the entire amount of income of the taxpayer subject to tax, even if the tax liability for that income was fully satisfied at source through withholding under chapter 3 of the Internal Revenue Code (Code). ...
(There IS an alternative version of the 1040, known as "Form 1040NR", which is particularly adapted to special provisions of the law regarding the taxation of "income" received under certain circumstances by "non-resident aliens". However, while the IRS instructions for "non-resident aliens" specify the use of that form in lieu of a standard 1040 when those special provisions are being exploited, or for non-resident aliens who are "engaged in a trade or business in the United States, or have any other U.S. source income on which the tax was not fully paid by the amount withheld", the same instructions merely say that a return must be filed, without specification as to version, when a refund is being sought.)
Furthermore, the positions adopted by the IRS Office of Chief Counsel (OCC) regarding the content of a legitimate, valid 1040 (OCC memoranda about which have long been posted on this site for the benefit of anyone not too busy haring off after the latest "silver-bullet" distraction) make clear that a 1040 has no hidden agenda or effect. The OCC has admitted that any document merely purporting to be a "return", containing sufficient information by which a tax liability can be calculated, representing an honest effort to abide by the tax laws, and signed as an affidavit serves as a fully sufficient substitute for a 1040; by the same token a 1040 itself need have nothing more than these same characteristics to be a fully valid return, sufficient for all purposes for which the form is designed.
The OCC has also acknowledged that the addition of a declaration to the signature area on a 1040 to the effect that by signing, the filer is not to be taken as waiving any rights or accepting any legal infirmity has no effect on the validity of the form. That is, a 1040 serves as a legitimate and fully functional tax return even when suspected secret agenda or hidden legal effects have been pre-emptively nullified.
Because there are none.
Q. Are the earnings of US citizens taxable (because earning money as a citizen is a privilege)? Or are a US citizen's earnings taxable because being a US citizen is a privilege, and by extension anything done as a US citizen is therefore an exercise of privilege (meaning that money earned by a US citizen is the product of exercising a privilege)?
A. No. First of all, the answer to this question should need no articulation, since the tax falls equally on US citizens, US residents who are not citizens, and even non-resident aliens, who are neither citizens nor resident or present in the United States. Further, of course, the question is moot for most folks anyway. While in some cases becoming a US citizen is a privilege granted by the government, in most cases it is not-- it is a birthright. No one is exercising a privilege for having a status or condition mandated by logic or the law.
However, even those granted citizenship after having been born as citizens of other countries do not then engage in privileged activity by fixing someone's plumbing, or owning a car-wash, or engaging in any other economic activity, unless the activity itself requires federal permission to conduct (which does not mean "licensing" or the production of paperwork proving that one is eligible for work-- the first of these is generally just a special tax charged for certification of competence or approval to practice one's profession in federal government facilities or for federal persons, and the second is just proof that one isn't in the country illegally).
To put it in a nutshell, citizenship and/or residency have no relevance whatever to whether one's activities are taxable or not.
That said, if one's activities ARE taxable, meaning that one is doing-- whether as a US citizen, state citizen, resident alien or non-resident alien-- federally-privileged economic activity, citizenship and/or residency can then have some relevance. For instance, under the law, non-resident aliens who have had "income" (gains from federally-privileged activities) are not entitled to the personal exemption that American citizens and resident aliens can claim-- but they can elect to be taxed as though they are resident aliens, under certain circumstances, per the provisions at 26 U.S.C. § 6013(g) and (h), and then can claim the exemption.
But if one is not exercising federal privilege of a kind which produces potential tax liability for US citizens, state citizens, resident aliens and non-resident aliens alike, citizenship and/or residency has nothing whatever to do with one's "taxable" status.
I am trying to understand and apply the things I have studied in
Cracking the Code and from the examples of persons who have applied
the same to filing 1040’s in this forum. If a US government worker
receives wages, I understand the wage is included in his Gross
income because of the privilege of working for the government. Would
a gain on sale of his home in the same year be excluded from Gross
Income if it was not related to his employment privilege or some
other privilege? Does privilege once established, make income of all
profit, gains and income from whatever source derived?
A. First, clear thinking on this subject is not possible unless one can utterly cease associating the expression "income" with anything but the benefit of federal privilege measured by the dollars received in its exercise. This is because, in the context of the related revenue laws, that is all that it means, always. (Similarly, the terms "wages", "employer", "employee", "self-employment", "trade or business", etc. should NEVER be used-- with or without quote marks-- in any tax-related context except as defined in the revenue law. Indeed, it is best to break the habit of using those terms as having any other meaning in ANY context. Use 'earnings', 'company', 'worker', 'work for myself' 'line of work', etc., instead.)
Furthermore, gains and profits, within the law, are not something
distinct from "income". There is no tax on gains and profits.
However, the law provides that it is only profitable "income" that is
taxed. This is the distinction between 'taxable' "income" (which
used to be called 'net' "income") and 'gross' "income". Thus, even a
beneficiary of federal privilege is permitted certain deductions
related to the "income" from the exercise of that privilege as
provided for by law. One may quibble with how realistic such
deductions are, but of course, being an "income" recipient is purely
voluntary, so if you don't like the rules, find a different
livelihood... Anyway, much material relating to the application of
the tax to "income" other than "wages" can be found in ''W' is for
Weapon' in CtC.
As for the direct question: It is the exercise of the federally-connected privilege that is taxed, not being a person to whom the privilege is available. Whether any given receipts qualify as "income" depends upon the activity by which they are realized. Someone can be a recipient of "income" from federally privileged activities and also have receipts which are not so connected, and thus do not qualify as "income".
Sample response to request for W-9
From: CtC Warrior Gary
I used the following to respond to a W-9 request, and never received
a response or any
COMPANY NAME, Inc.
This is to notify you regarding your request dated “DATE" (copy
enclosed) for completion
I believe the W-9 does not apply to me. It instructs that the
form is to be used if I am “a U.S.
Additionally, my reading of applicable statutes and implementing
regulations leads me to
Additionally, I do not believe the tax form you referenced (1099)
applies to anything that has
This reflects my attempt to fully and accurately comply with all lawful requests made of me.
Thus, until you provide me with the statutes and implementing
regulations that demonstrate
Please also let this serve as notice that I rescind my signature
from any previous W-9(s) you
A position statement from the IRS refuting my objections will be
insufficient without specific
A nice summary of the federal register and CFR systems, along with the current Parallel Table Of Authorities, can be found here.
Access to IRS account transcripts can be found here.
Form 4506-T, which can be used to order transcripts of information returns (W-2s and 1099s) about you on record with the IRS can be downloaded here.
Form 4506, which can be used to order exact copies of things you filed (1040s, 4852s, etc.) can be downloaded here.
Form 4852 www.irs.gov/pub/irs-pdf/f4852.pdf
Tax Research Links Law Library of Congress: www.loc.gov/law/guide/uscode.html#stat
Statutes at Large (1789-1875): memory.loc.gov/ammem/amlaw/lwsl.html
US Code: www.loc.gov/law/guide/uscode.html
Title 26 (IRC): uscode.house.gov/download/title_26.php
Public Laws: www.gpoaccess.gov/plaws/index.html
States Laws (All 50): www.loc.gov/law/guide/usstates.html
FindLaw: (Cases & Code) www.access.gpo.gov/nara/cfr/cfr-table-search.html
VersusLaw (Prem Search) www.versuslaw.com/
Government Print Office www.gpoaccess.gov/
IRS Related: www.irs.gov/index.html
Forms & Publications www.irs.ustreas.gov/formspubs/index.html
Code of Federal Regs www.access.gpo.gov/nara/cfr/cfr-table-search.html
Internal Rev Bulletins (IRB) www.irs.gov/businesses/lists/0,,id=98230,00.html
A U.S. Tax Court Help Page: http://ustaxcourt.gov/taxpayer_info_intro.htm