FAQ2

Q. The new Form 4852 is different from the one in the appendix of CtC. Is this significant?

A. It's impossible not to smile at the fact that as we move into only the fourth "tax season" since the publication of 'Cracking the Code- The Fascinating Truth About Taxation In America' the IRS has felt obliged to scramble out its second revision of the Form 4852 in as many years! Despite the fact that a mere 13 months ago the form was given its first makeover in many years, last month yet another new version made its appearance. In both cases, the changes involved reflect the obvious purpose of discouraging educated Americans from using the form for its declared purpose of correcting erroneous W-2 or 1099-R "information returns" in the course of securing a filer's claims to the return of his or her own property or pre-empting erroneous tax agency presumptions or assertions of liability.

Last year's "revision" (dated 12/05) involved moving a "Purpose of form" instructional paragraph from its previous place on the the back side of the form (where it had been for years) onto the front. This "Purpose of form" language, which includes the line, "...is completed by taxpayers or their representatives when (a) their employer or payer does not give them a Form W-2 or Form 1099-R and (b) when an employer or payer has issued an incorrect Form W-2 or Form 1099-R", was doubtless moved to its prominent new location in hopes that no one will notice the lack of an "only" in that line, and will thus be hindered by the suspicion that the form is ONLY to be used by "taxpayers or their representatives", and thus to use the form serves to declare oneself a "taxpayer".

In reality, of course, this instruction means no more than it plainly says: If a "taxpayer" needs a form for the stated purpose, this is the one to use. In no way does this preclude or prohibit non-"taxpayers" from using it for the same purpose. If such a preclusion or prohibition was intended, that missing "only" would not be missing, and the line would read, "...is only to be completed by taxpayers or their representatives..."...

At the same time, the lines, "This form serves as a substitute for Form W-2, W-2c or 1099-R. Use this form to file your income tax return.", which followed the relocated language in the earlier version of the form were carefully relocated themselves. No longer together as the last two lines of the instruction portion, the former became the opening line of the paragraph, and the latter, while remaining at the end, was reworded to say, "Attach this form to your income tax return." I may be doing the IRS an injustice, but I suspect that these otherwise inexplicable changes were made in the hope that some would misunderstand the overall character of a filing, and mistakenly attach the Form 4852 along with the erroneous W-2 or 1099-R it is intended to correct-- thus making the return self-contradictory, and statutorily "frivolous". As I said, I'm probably doing the 'service' an injustice...

The other notable change in the 12/05 revision was the addition of the phrase "tax year" in the declaration language in section 4 of the form. Again, just my cynical mind, but I suspect this was another attempt to play to the imaginations of careless readers, who might take the phrase as reflecting some undesirable implication to the use of the form. However, "tax year" is not a legally defined term (unlike "taxable year", which is, and which could have been used here, but was not); and, frankly, anyone uncomfortable with the phrase is free to strike "tax" out of it. The document is, after all, the signer's testimony.

THIS year's version retains all the changes noted above (and makes a few insignificant section numbering changes), but has adopted a smaller typeface and narrower bottom margin in order to pile on a bit thicker yet. NOW the "instructions" portion taking up space on the face of the form includes a scary-sounding "Penalties" paragraph, which wastes yet a little more government ink to remind us that "The IRS will challenge the claims of individuals who attempt to avoid or evade their federal tax liability by using Form 4852 in a manner other than as prescribed." This is followed by a couple of specific penalty percentage or amount figures which might apply to someone using a 4852 (or any other instrument) in an "attempt to avoid or evade their federal tax liability".

How ridiculous! I think that there are few Americans who suffer from any uncertainty about the 'service' being prepared to "challenge the claims" of anyone attempting to "avoid or evade their federal tax liability" by using Form 4852 in a manner other than as prescribed-- or by any means, for that matter. Indeed, as most of us understand it, this is a big part of the agency's job description. Unfortunately, conning a gullible and ignorant public is another big part of the agency's mission, and the addition of language like this to the face of a 4852 already redecorated with a carefully-crafted effort to confuse the true character of "the manner prescribed" amounts to yet another step in a long-running IRS dance on the very edge of fraud.

Clearly, this language has no relevance whatsoever for anyone NOT "attempt[ing] to avoid or evade their federal tax liability", which automatically, and without further consideration, includes anyone who has no such liability in the first place. Just as clearly, this language, and all the changes noted above, have been added to the face of Form 4852 purely for the improper purpose of intimidating casual or careless students of the law who may have a notion of the significance of rebutting testimony made about them by others, but have not gone to the trouble of learning the whole truth about the law and its mechanisms, and thus are not secure in their knowledge and understanding. It is obviously hoped that such folks will be induced into paralysis by the mistaken impression that Form 4852 is not to be used by non-"taxpayers", and a consequent uncertainty of their right to rebut erroneous testimony about the legal character of their receipts by any means.

Those who HAVE gone to the trouble to spend the week or so needed to learn the truth, on the other hand, recognize that this reconstruction of the Form 4852 is nothing but the latest confirmation of that truth, as IRS efforts to deceive always prove to be, when carefully considered. They understand that IF the use of the form was actually restricted to "taxpayers and their representatives", the missing "only" mentioned earlier would not be missing; and if the use of the form by non-"taxpayers" with no federal tax liability was inherently improper, the reference to its use by someone in an "attempt to avoid or evade their federal tax liability" would be superfluous, and WOULD be missing.

Further, the educated Americans recognize that IF the use of the Form 4852 WERE restricted, this would simply mean that those to whom its use was denied would be obliged to produce and deploy self-designed instruments of precisely the same character, function and effect, making such a restriction pointless. While the use of certain forms CAN be confined to certain persons, the provisions of due process of law cannot be.

Most tellingly, educated (or merely clear-thinking) consideration reveals that IF the rebuttal of "information return" testimony were not the inherent right of every person, and were not, in fact, an integral aspect of the actual "income" tax structure, the IRS would simply issue an edict plainly banning the practice-- and would do so in a heartbeat, and as loudly as a "bully pulpit" and a multi-billion dollar budget would allow. That it has not done so will be accorded its due significance by the wise.

Finally, Word to "the Service": Educated Americans across this awakening country are going to continue to rise right and left to "challenge the claims" of government spin-doctors attempting to avoid or evade the limitations of the law by clever form re-designs, PR and disinformation campaigns, or any other means. Courageous Americans had been challenging the misapplication of the "income" tax for decades simply due to recognizing that their practical experience of the tax was inconsistent with the enjoyment of liberty and the rule of law to which they are entitled. Armed now with the whole truth about the tax, those who love their liberty and their country more than the tranquility of servitude aren't going to be standing down anytime soon.

Q. You say in your foreword (7th edition and earlier): "Corporate managers, though, are warned that this book does not directly address the peculiarities of the "income" tax as it applies to artificial persons." Does this mean that "income" means something different for artificial persons than what it means for "natural persons"?

A. Not at all. "Artificial persons" are relevantly viewed by the law in precisely the same fashion as "natural persons", and both are taxed on the same activities, and nothing but the same activities. The "disclaimer" language you cite simply reflects the fact that I devote very little of CtC to discussing how state-chartered corporations (or LLCs, etc.) are made to appear to be federal or federally-controlled corporations ("domestic corporations", or "corporations organized under the laws of the United States", etc.). (See www.losthorizons.com/tax/faq.htm#StatePrivileges for additional material on this topic.)

Q. Is the "Excess Social Security and Tier 1 RRTA Tax Withheld" line on a 1040 the proper place for reporting or reclaiming what is withheld from non-"wage" earnings under the names "Social Security and/or Medicare taxes" (and should "Form 843" be used for this purpose)?

A. No. The following explanation of what that line IS for (and what "Form 843" is for, as well) is taken from the IRS online "Tax Topics" collection, topic #608:

Most employers must withhold social security tax from your wages. Certain government employers (some federal, state, and local governments) do not have to withhold social security tax.
If you work for a railroad employer, your employer must withhold Tier 1 railroad retirement (RRTA) tax and Tier 2 RRTA tax.
If you had more than one employer and your total wages were over the wage base limit for the year, too much social security tax or Tier 1 RRTA may have been withheld. The wage base limit for the year can be found in the Form 1040 Instructions. If you had more than one railroad employer, and your total compensation was over the maximum amount of wages subject to Tier 2 RRTA, too much Tier 2 railroad retirement (RRTA) tax may have been withheld. If you had too much social security tax or Tier 1 RRTA withheld, you may be able to claim the excess as a credit against your income tax. If any one employer withheld too much social security or RRTA tax, you cannot claim the excess as a credit against your income tax. Your employer should make an adjustment of the excess for you. If the employer does not make an adjustment, you can use Form 843 (PDF), Claim for Refund and Request for Abatement to claim a refund.
If you are claiming excess social security or Tier 1 RRTA tax withholding, from having 2 or more employers, you cannot file 1040EZ. You must file Form 1040 (PDF) or Form 1040A (PDF). To claim a refund of the Tier 2 RRTA tax, use Form 843 (PDF). If you are filing a joint return, you cannot add any social security or RRTA tax withheld from your spouse's income to the amount withheld from your income. You must figure the credit separately for both you and your spouse to determine if either of you had excess withholding.
For details, including how to compute the amount of excess credit, refer to Publication 505, Tax Withholding and Estimated Tax.

To clarify: The "Excess Social Security and Tier 1 RRTA Tax Withheld" line on a 1040-- and "Form 843"-- are for the use of those who DID receive "wages", but had the FICA or Tier 1 RRTA sur-tax applied to more of those "wages" than it should have been. The sur-tax only applies to "wages" up to a certain amount (currently $94,200). Those who had the sur-tax applied to "wage" receipts above that amount can use the "Excess Social Security and Tier 1 RRTA Tax Withheld" line to claim a refund of that excess amount withheld. See an 'Every Which Way But Loose' episode touching at least obliquely on this subject here.

There IS "A Law", And This Is How It Works

A Thumbnail Sketch Of The "Income" Tax Reporting And Determination Process

A helpful summary of certain core "income" tax dynamics

At the close of the reporting period (December 31st, in most cases), payers considering themselves obliged to issue taxable activity reports create and execute one or more of the various "information return" reports (W-2s, 1099s and K-1s, mostly), sending one copy to federal, state and/or local tax agencies, and one copy to the person about whom the document makes its allegations.

Having thus been put on notice that allegations of having received "income" have been reported to the government(s) to whom any resulting tax would be owed, the reportee either:

A. Lets the allegations go without response-- thus inviting the tax agency (we'll just focus on the federal system, now) to:

presume them correct and true;

to create a "SFR" "module" in order to calculate the resulting tax liability (without going into the legitimacy of doing so in any particular case-- if no response has been made to "income" allegations, a door has been left pretty wide open for all manner of presumptions about the legal status of the reportee);

and to claim ownership of any withheld or paid in amounts up to that calculated liability, and/or (eventually) issue an appropriate "Notice of Deficiency" for any outstanding balance.

(NOTE: The agency is also thus invited to impose available statutory sanctions, such as a "failure to file" penalty, for instance. This is because the requirement to file-- which generally arises upon receipt of a threshold amount of "income"-- and jurisdiction for the imposition of sanctions have been presumptively established by the allegations of the taxable activity report and the failure of the reportee to rebut them after being put on notice.)

B. Responds to the allegations by filing a valid (that is, accurate, honest, and self-consistent) return which either:
1. Acknowledges the reported taxable activity ("income"), claims appropriate deductions, credits, exemptions etc., calculates the resulting tax liability and self-assesses,

or

2. Corrects or rebuts the reported "income" amount(s), claims appropriate deductions, credits, exemptions etc. (if applicable and relevant), calculates the resulting tax liability and self-assesses (very possibly resulting in an assessed liability of $0.00 and a claim for the return of everything withheld or paid-in).

(NOTE: Returns rebutting allegations of the receipt of "wages" and/or "trade or business"-generated "income" simultaneously rebut jurisdictional presumptions which could otherwise be supported by those allegations.)

In the case of B(1) or B(2), the IRS can then:

a. Issue a refund check or credit (if the self-assessed amount is less than the amount withheld, paid in, carried forward, or otherwise available for crediting for that period-- thus resulting in an "overpayment");

b. Bill the filer for any balance due if the amount assessed on the return is more than the amount withheld, paid in, carried forward, or otherwise available for crediting for that period;

or

c. Make a determination that the amount self-assessed is deficient and issue a "Notice of Deficiency"-- but only on the basis of the rate of tax having been incorrectly applied to the amount of "income" shown on the return (through math and/or deduction/exemption/credit reduction errors).

It will be noted that each of these latter IRS response options are confined to calculations based on the amount of "income" reported on the return. When a return has indeed been filed, the agency has no authority to do otherwise. This is why when it wishes to thwart an educated American (which is to say, when it wishes to evade the tax laws and the required issuance of properly-claimed refunds), the IRS will try to deny the relevant return was ever filed.

Toward that end, the agency has actually gone so far as to deny ever having received the returns of some educated filers whose returns made claims the agency did not wish to honor-- an, "Our junk-yard dog must've eaten your tax return!" routine. This only delays the inevitable for a brief time, of course, while the filer walks a copy in to the local office and personally oversees having it stamped as received, or otherwise secures incontrovertible evidence of the agency receiving the filing.

Thus, alternative ploys are becoming more common when the IRS wishes to evade the law. One is a simple declaration that the return is "frivolous" (under the statutory definition at 26 USC 6702-- a status which, when accurate, means the return can be treated as though never filed, according to current doctrine), in the hope that the filer will back down in confusion and fear. (Click here for more about this revealing ploy, which would obviously never be attempted if the law provided for any other means of defeating a claim, and here for a series of case-studies of CtC Warriors who have dealt with this, and other tax-agency ploys.) Then the agency will follow up with with the steps outlined earlier in section "A."

Another is to invite the filer to abandon his testimony, by proposing alternative numbers on a convenient form which the filer can sign under penalty of perjury and thus adopt as a modification of his previously-filed return-- as though what had been filed must simply have been a big mistake, from which the filer will surely back down (in confusion and fear).

CtC-educated Americans do not back down in confusion and fear, of course...

Q. I suppose you are aware of revenue ruling 2007-21, displayed on the IRS website here: http://www.irs.gov/irb/2007-14_IRB/ar15.html I have not reviewed this ruling in fine detail, but it appears to be an attempt to blur the distinction between a Summary Record of Assessment and the information required to be produced by Treasury Regulation § 301.6203-1. If you have addressed this revenue ruling in any of your writings, could you please direct me to your work?

A. Interesting. I wonder if this "revenue ruling" was crafted specifically in response to a 'Tax Tip' from last winter that ended up posted as part of 'RegardingTheLevyPower'. If so, as is the case in all efforts to put stumbling blocks in the path of the CtC army marching on behalf of the law, this revenue ruling (RR) carefully misconstrues that post.

For example, the subject of the relevant part of the 'Levy Power' post is the fact that a series of procedural elements must be in place for an assessment to be valid, and that furnishing meaningful evidence of agency compliance to the target of a alleged levy (or lien) is statutorily prescribed. The post also observes that furnishing such evidence would be mandatory-on-demand in any event under the basic principles of due process-- for otherwise, how could the person being dunned challenge the legitimacy of the alleged obligation?

This RR, however, merely disputes an imaginary contention (or perhaps one actually made or advocated by the non-CtC/LostHorizons-educated-- see the warning below about looking elsewhere for "income" tax-related information or understanding) that an assessment would be inherently invalid simply because such evidence has not been furnished. Nothing of the sort is said in the post, of course-- to the degree this RR is intended to relate to the post this is pure misdirection-- but I suppose it's a creditable effort at sowing some confusion in the minds of those not yet in the habit of reading everything carefully. (How'd you like a job where your sense of accomplishment on the way home from work each day is based on how well you concealed the truth from your fellow Americans?)

The point of the requirement to furnish evidence, and of the interest in seeking it, is establishing that the alleged assessment (and the related levy or lien) is based on an actual sworn return-- as required by law-- and wasn't just written up by the cleaning lady, or by someone of greater authority who failed to swear under penalties of perjury to the truth of the related allegations. This is no different from the alleged debtor's interest in seeing a signed charge slip when being billed by a credit card company, and the purported creditor's obligation to display one.

To summarize: There ARE underlying procedural requirements that must be met for an assessment to be valid. While furnishing evidence that those underlying requirements have been met IS statutorily required, meeting THAT requirement is not, itself, one of the elements upon which the validity of the assessment relies. Consequently, any effort to secure evidence of the underlying requirements is NOT based on, or in furtherance of, a contention that a failure to have furnished that evidence makes the assessment invalid.

This brings us to the real purpose of this revenue ruling, which is apparently to discourage demands for evidence that the underlying requirements for an assessment have been met, by threatening to treat such demands as "frivolous submissions", subject to a $5,000 penalty, under the new terms of 26 USC 6702. (I won't dig into the rich vein of why the 'service' would wish to discourage such efforts. It would be fun, but really just a waste of pixels, as the answer to that question is obvious...) The legitimacy of the threat relies entirely upon the gratuitous mischaracterization of the reason for the demand for evidence we've been discussing.

The makeover of 6702 (posted below) includes renominating "frivolous returns" as part of a new, broader class of "frivolous submissions". NOTE: The technical characteristics of what qualifies as a "frivolous return" have not changed at all. However, two other specific kinds of "submissions" to the IRS, if meeting the long-standing particulars of 6702(a)(2), can now be deemed "frivolous" as well, and made subject to a penalty. These include requests for hearings under 26 USC 6320 and 6330 ("Collections Due Process Hearings"), and requests for payment agreements under 26 USC 6159, 7122 and 7811, if such a request:

(i) is based on a position which the Secretary has identified as frivolous under subsection (c), or

(ii) reflects a desire to delay or impede the administration of Federal tax laws.

The idea that an assessment is invalid unless evidence of the underlying procedural requirements being met has been furnished to the person alleged to be liable IS "frivolous". If a request for a CDPH were submitted based on the claim that such evidence has not been furnished AND THEREFORE the proposed assessment is invalid, this new penalty provision would, on its face, apply to that submission. An assessment certainly CAN be valid without regard to whether evidence that it is has been furnished to the person allegedly liable.

Indeed, evidence that all the procedural and legal elements necessary to a valid assessment have been accomplished CAN'T be so furnished prior to their accomplishment, and once they HAVE actually been accomplished, the assessment is immediately valid. Inescapably, the validity of a properly accomplished assessment necessarily pre-dates, and is independent of, the furnishing of evidence of that validity.

A request for such evidence is therefore not for the purpose of challenging the 'service' to make the assessment valid or reflective of the idea that furnishing the evidence is some kind of final step in the assessment process, but rather is for the purpose of determining whether or not all of the steps that ARE part of that process have actually been faithfully and properly carried out. (Obviously, if the 'service' fails to furnish such evidence, it can only be because those steps have NOT been faithfully and properly carried out, and no valid assessment does, in fact exist.)

Thus, this frivolous notion gratuitously addressed by RR 2007-21 is BY NO MEANS an element of a proper demand for evidence that an assessment is supported by a sworn return affidavit as required by law (and related challenges in connection with a CDPH are explicitly provided for in 26 USC 6330(c)(2)(B): Underlying liability-- The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.). Such a demand would not only NOT be a request for a hearing (or "payment agreement"!), but it would not be based on the rationale addressed in the RR.

Finally, dwelling on a form number as this RR does is part and parcel of the misdirectional exercise (or further evidence of the ruling's irrelevance). The form number means nothing in and of itself-- it is the definitive content of whatever evidence is presented that matters. Certainly the Form 23C referred to in this RR is a good bet to offer such content, as it bears, if completed properly, a signature of someone taking personal responsibility for certifying the existence of a sworn return on which the alleged assessment is based (the return itself is better still...). However, any instrument similarly executed and relevant would do the same. On the other hand, a mere aggregate record of assessments, not particular to the inquiring citizen, or even something more particular but not making anyone personally liable for its assertions is of no use whatever, no matter what the instrument is numbered or labeled.

***

The language of the new version of 6702, as reported by the "Taxpayers Against Fraud Education Fund", is (or will be-- I've yet to see definitive evidence that this change has actually been enacted) as follows (note that, as indicated earlier, the specifications as to what constitutes a "frivolous return" have not changed at all in this revision-- see 'It's Time To Demand An End To This "Frivolous" Nonsense' for an in-depth discussion of those specifications):

SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

(a) Civil Penalty for Frivolous Tax Returns- A person shall pay a penalty of $5,000 if--

(1) such person files what purports to be a return of a tax imposed by this title but which--

(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or

(B) contains information that on its face indicates that the self-assessment is substantially incorrect, and

(2) the conduct referred to in paragraph (1)--

(A) is based on a position which the Secretary has identified as frivolous under subsection (c), or

(B) reflects a desire to delay or impede the administration of Federal tax laws.

(b) Civil Penalty for Specified Frivolous Submissions-

(1) IMPOSITION OF PENALTY- Except as provided in paragraph (3), any person who submits a specified frivolous submission shall pay a penalty of $5,000.

(2) SPECIFIED FRIVOLOUS SUBMISSION- For purposes of this section--

(A) SPECIFIED FRIVOLOUS SUBMISSION- The term `specified frivolous submission' means a specified submission if any portion of such submission--

(i) is based on a position which the Secretary has identified as frivolous under subsection (c), or

(ii) reflects a desire to delay or impede the administration of Federal tax laws.

(B) SPECIFIED SUBMISSION- The term `specified submission' means--

(i) a request for a hearing under--

(I) section 6320 (relating to notice and opportunity for hearing upon filing of notice of lien), or

(II) section 6330 (relating to notice and opportunity for hearing before levy), and

(ii) an application under--

(I) section 6159 (relating to agreements for payment of tax liability in installments),

(II) section 7122 (relating to compromises), or

(III) section 7811 (relating to taxpayer assistance orders).

(3) OPPORTUNITY TO WITHDRAW SUBMISSION- If the Secretary provides a person with notice that a submission is a specified frivolous submission and such person withdraws such submission within 30 days after such notice, the penalty imposed under paragraph (1) shall not apply with respect to such submission.

(c) Listing of Frivolous Positions- The Secretary shall prescribe (and periodically revise) a list of positions which the Secretary has identified as being frivolous for purposes of this subsection. The Secretary shall not include in such list any position that the Secretary determines meets the requirement of section 6662(d)(2)(B)(ii)(II).

(d) Reduction of Penalty- The Secretary may reduce the amount of any penalty imposed under this section if the Secretary determines that such reduction would promote compliance with and administration of the Federal tax laws.

(e) Penalties in Addition to Other Penalties- The penalties imposed by this section shall be in addition to any other penalty provided by law.'.

(b) Treatment of Frivolous Requests for Hearings Before Levy-

(1) FRIVOLOUS REQUESTS DISREGARDED- Section 6330 (relating to notice and opportunity for hearing before levy) is amended by adding at the end the following new subsection:

(g) Frivolous Requests for Hearing, etc- Notwithstanding any other provision of this section, if the Secretary determines that any portion of a request for a hearing under this section or section 6320 meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review.'.

(2) PRECLUSION FROM RAISING FRIVOLOUS ISSUES AT HEARING- Section 6330(c)(4) is amended--

(A) by striking `(A)' and inserting `(A)(i)';

(B) by striking `(B)' and inserting `(ii)';

(C) by striking the period at the end of the first sentence and inserting `; or'; and

(D) by inserting after subparagraph (A)(ii) (as so redesignated) the following:

(B) the issue meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A).'.

(3) STATEMENT OF GROUNDS- Section 6330(b)(1) is amended by striking `under subsection (a)(3)(B)' and inserting `in writing under subsection (a)(3)(B) and states the grounds for the requested hearing'.

(c) Treatment of Frivolous Requests for Hearings Upon Filing of Notice of Lien- Section 6320 is amended--

(1) in subsection (b)(1), by striking `under subsection (a)(3)(B)' and inserting `in writing under subsection (a)(3)(B) and states the grounds for the requested hearing', and

(2) in subsection (c), by striking `and (e)' and inserting `(e), and (g)'.

(d) Treatment of Frivolous Applications for Offers-in-Compromise and Installment Agreements- Section 7122 is amended by adding at the end the following new subsection:

(f) Frivolous Submissions, etc- Notwithstanding any other provision of this section, if the Secretary determines that any portion of an application for an offer-in-compromise or installment agreement submitted under this section or section 6159 meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review.'.

(e) Clerical Amendment- The table of sections for part I of subchapter B of chapter 68 is amended by striking the item relating to section 6702 and inserting the following new item:

Sec. 6702. Frivolous tax submissions.'.

(f) Effective Date- The amendments made by this section shall apply to submissions made and issues raised after the date on which the Secretary first prescribes a list under section 6702(c) of the Internal Revenue Code of 1986, as amended by subsection (a).

Q. Is there any need or virtue to including legal arguments in a filing supporting or justifying what is being reported?

A. In a word, no. Once a testimonial declaration as to the factual matters with which the filing is concerned is made (by way of the return) and appropriate testimonial declarations in rebuttal of any allegations that amounts were received during the relevant period as a consequence of engaging in a taxable activity (by way of affidavits in response to "information returns", such as Forms 4852, or corrective responses to 1099s, etc.), the tax agencies are required as a matter of law to accept that testimony as definitive and final. Further, even if the agencies were NOT required to accept the filer's testimony, a tax agency/government that wishes to assert a competing claim to what has been established by the filer's declarations would bear every burden of proving its claim.

Unless someone has already conceded the point in his or her filed return, or given it up by default through non-filing, the burden of proving that IT has a claim to withheld money is ALWAYS on the government in any dispute situation. The return will have formally asserted the filer's continuing ownership and right to possess that property:

“Even if you do not otherwise have to file a return, you should file one to get a refund of any Federal income tax withheld.”

From the instructions for the 2002 Form 1040

26 CFR 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).

Senator Danaher: "Of course, you withhold not only from taxpayers but nontaxpayers."

Mr. Hardy: "Yes."

...

Senator Danaher: "I have only one other thought on that point. In the event of withholding from the owner of stock and no taxes due ultimately, where does he get his refund?"

Mr. Friedman: "You're thinking of a corporation or an individual?"

Senator Danaher: "I am talking about an individual."

Mr. Friedman: "An individual will file an income tax return, and that income tax return will constitute an automatic claim for refund."

The filer does not have to prove his ownership and right to that property-- it never stops belonging to him unless and until a competing claim could be, and is, proven both: 1.) to be possible (that is, until it is proven that he actually engaged in a relevant taxable activity) and 2.) to have been asserted in a legally meaningful way (that is, until it is proven that a valid assertion of the government's alleged claim can be, and has been, made in a legally meaningful way). With regard to these governmental burdens (particularly the latter burden):

“And be it further enacted,…that any party, in his or her own behalf,…shall be permitted to declare, under oath or affirmation, the form and manner of which shall be prescribed by the Commissioner of Internal Revenue,... ...the amount of his or her annual income,… liable to be assessed,… and the same so declared shall be received as the sum upon which duties are to be assessed and collected.” Revenue Act of 1862, Sec. 93

26 CFR 301.6203-1 Method of assessment.

...The amount of the assessment shall, in the case of a tax shown on a return by the taxpayer, be the amount so shown...

(...and even $0.00 is an amount. By the way, those disturbed by the gratuitous use of the term "taxpayer" in this regulation should relax and read or re-read 'About 1040s And Claiming Refunds' in CtC.)

Nor does a filer have to prove that he DIDN'T engage in a relevant taxable activity (or that the activities he engaged in weren't of a taxable character)-- all he has to prove is that he asserted his claim in a legally meaningful manner.

26 USC § 7422 Civil actions for refund

(a) No suit prior to filing claim for refund

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.

Further, this same dynamic applies anytime a tax agency suggests that it gets to assume ownership of anyone's property (either by taking that property or by keeping it) in the face of a proper assertion of ownership and claim for refund by the annual filer. "We changed your account [to our benefit]...", for instance, doesn't mean anything unless preceded by, "We proved that you did something making you beholden to us for $x.xx, that we have the authority to assert our claim despite your relevant filed return(s) and self assessment(s), and that we did, in fact assert that claim in a legally meaningful manner."

Otherwise, it's really just, "We're implying that we have some god-like authority to assume ownership of whatever we wish, and we hope you've been sufficiently brow-beaten and confused by the life-long conditioning to which we have subjected you to imagine that this could be true..."

(NOTE: See 'About 1040s And Claiming Refunds' in CtC for more on this subject.)

Q. What are "1099-K" reports (credit-card transaction reports) all about?

A. A LOT OF FOLKS ARE AWARE, OR ARE ABOUT TO BE MADE AWARE, of a recent addition to the list of economic activities that must be reported to the taxman. This new obligation is codified at 26 USC § 6050W, and concerns credit-card transactions.

The requirement is on processors of such transactions to report aggregate total amounts processed of $20,000 or more annually, or a total of 200 or more transactions processed annually, regardless of the aggregate amount, to the IRS. The form used for the reporting is a new version of the 1099, known as the 1099-K.

As is always the case in the area of the "income tax", the presentation of this requirement looks at first glance to be all-inclusive-- that is, it looks as though banks and other operations must report to the government on credit-card payments made to everyone in America (with the implication that everyone should imagine such payments to somehow qualify as payments in which the government has a legitimate interest-- "interest" both in the sense of awareness and in the sense of an ownership interest so as to be able to lawfully claim a "piece of the action" in the form of a tax). Looking at the law we see broad language such as:

(a) In general

Each payment settlement entity shall make a return for each calendar year setting forth—

(1) the name, address, and TIN of each participating payee to whom one or more payments in settlement of reportable payment transactions are made, and

(2) the gross amount of the reportable payment transactions with respect to each such participating payee.

Such return shall be made at such time and in such form and manner as the Secretary may require by regulations.

(b) Payment settlement entity

For purposes of this section—

(1) In general

The term “payment settlement entity” means—

(A) in the case of a payment card transaction, the merchant acquiring entity, and

(B) in the case of a third party network transaction, the third party settlement organization.

(2) Merchant acquiring entity

The term “merchant acquiring entity” means the bank or other organization which has the contractual obligation to make payment to participating payees in settlement of payment card transactions.

(3) Third party settlement organization

The term “third party settlement organization” means the central organization which has the contractual obligation to make payment to participating payees of third party network transactions.

and later,

For purposes of this section—

(1) In general

The term “reportable payment transaction” means any payment card transaction and any third party network transaction.

(2) Payment card transaction

The term “payment card transaction” means any transaction in which a payment card is accepted as payment.

(3) Third party network transaction

The term “third party network transaction” means any transaction which is settled through a third party payment network.

(d) Other definitions

For purposes of this section—

(1) Participating payee

(A) In general

The term “participating payee” means—

(i) in the case of a payment card transaction, any person who accepts a payment card as payment, and

(ii) in the case of a third party network transaction, any person who accepts payment from a third party settlement organization in settlement of such transaction.

Look at all those "any"s! You'd think from this language that Congress has just abandoned all restraint and thrown the Constitutional limitations on the tax authority in the trash!

BUT...

Not to worry. Not only does context provide the limits to the law, as always-- meaning that the scope of a law is limited to the scope of the authority under which it is enacted, and the limits apply whether explicitly acknowledged or not-- but here Congress has, in fact, given those who go to the trouble to look the Constitutionality-relief-valve it so often does throughout the otherwise expansive-seeming language of the "income tax" laws.

Stuck amidst the broad wording excerpted above is this little qualifying clarification:

For purposes of this section—

The term “person” includes any governmental unit (and any agency or instrumentality thereof).

Plugging this specification in where it belongs we see that the rubber-hits-the-road portion of this law, by which those about whose receipts reports must be made are identified, and whose receipts are thereby being identified by the structure of this law as the objects of government interest under this section, actually reads:

(1) Participating payee

(A) In general

The term “participating payee” means—

(i) in the case of a payment card transaction, any governmental unit (and any agency or instrumentality thereof) who accepts a payment card as payment, and

(ii) in the case of a third party network transaction, any governmental unit (and any agency or instrumentality thereof) who accepts payment from a third party settlement organization in settlement of such transaction.

Upon examination, then, the credit-card reporting protocols are NOT a departure from the rest of the "income tax" structure after all. Instead, they are completely consistent with the rest of that structure, a simple design intended to ensure that the state's many far-flung organs and instrumentalities are kept properly within its oversight and accounting purview, and that no one benefitting from a federal office or privilege can get away with pocketing a portion of the booty to which he or she is not entitled.

Of course, a presumption will be made by the IRS and state tax agencies that anyone about whom credit-card payments are reported is a governmental unit, and that the payments reported are therefore within the legitimate purview of these tax agencies. But where these things are not so an honest and accurate rebuttal will set the record straight, just as in the case of any other such erroneous allegation.

(NOTE: There is obviously a little "art" being used in the section language, with the specification of the meaning of "person" being captioned, "Inclusion of governmental units". To those unfamiliar with the way law is written and construed, and especially those conditioned with the rather strange belief that federal laws don't apply to federal people unless they are specifically mentioned, this misleading caption would suggest that rather than being a specification of the meaning of "person" for purposes of the section, this is a provision adding governmental units to some other definition.

But other than allowing for limited expansion to members of the class identified by the words that follow it, "includes" is a limiting term, however its deployment is captioned. And even beyond that, it is easily seen that this misconception is just that-- a misconception. After all, governmental units are "persons" under the general definition of that term, and some of them accept credit-card payments for this and that. Therefore, had no specification been provided at all, governmental units would have automatically been amongst those to whom the statute applies under its plain, unqualified language.

Consequently, it can't be mistaken that however quirky the caption, the spec can only be provided for the purpose of CONFINING the application of the law to the class "governmental units"-- something imposed by the Constitutional limitations on the tax, in any event.)