Surely any champion of freedom wants to get rid of the income tax. And surely the way to really get rid of the income tax is to repeal the Sixteenth Amendment to the U.S. Constitution. Right?
Wrong.
Repealing the Sixteenth Amendment would be a waste of time because its disappearance would change nothing. Alas, Congress could continue to tax incomes (and anything else).
The rest of this week's TGIF, "Don't Repeal the Sixteenth Amendment!," is at the Foundation for Economic Education website.
The 861 argument, as articulated by Larken Rose, contains much, much buildup, but in the end it's all based on a misunderstanding of this regulation. The regulation just provides a list of the situations in which it matters whether income is from foreign sources or not. The regulation does not show that domestic income is not taxable. The above references, and particularly code section 61's definition of gross income as "all income from whatever source derived" (as opposed to section 871's limitation to "the amount received from sources within the United States"), shows that the domestic income of a U.S. citizen is subject to the income tax.By the way, the notion that the whole thing turns on a regulation is somewhat ironic: most tax protestors are particularly insistent that they want the government to rely on laws (which have to be passed by Congress), not just regulations (which come from a government agency such as the IRS).
Siegel adds that as long as we're consulting the IRS regs, we might as well look at 26 C.F.R. § 1.1-1:
. . . (b) Citizens or residents of the United States liable to tax. In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States.
As we've come to expect, there's nothing to the 861 argument. For more, click here.
Petitioner Cheek was charged with six counts of willfully failing to file a federal income tax return in violation of 7203 of the Internal Revenue Code (Code) and three counts of willfully attempting to evade his income taxes in violation of 7201.What? You mean the sections of the law are stated in black and white? But we've been told over and over that the government never says what law is violated in such cases. How about that!
Although admitting that he had not filed his returns, he testified that he had not acted willfully because he sincerely believed, based on his indoctrination by a group believing that the federal tax system is unconstitutional and his own study, that the tax laws were being unconstitutionally enforced and that his actions were lawful.The Court ruled that Cheek should have been allowed to argue to the jury that he sincerely believed he was not liable for the tax, as unreasonable as that belief may be. His sincere belief goes to the crucial element of willfulness, which is a jury question. (The trial judge had told the jury to disregard the defendants statements to that effect.) But it also ruled that Cheek was properly barred from arguing to the jury that the income-tax law is unconstitutional. That, the justices said, is not a jury question. Some more highlights:
We thus disagree with the Court of Appeals' requirement that a claimed good-faith belief must be objectively reasonable if it is to be considered as possibly negating the Government's evidence purporting to show a defendant's awareness of the legal duty at issue. Knowledge and belief are characteristically questions for the factfinder, in this case the jury....The Court sent the case back for retrial, and guess what. The jury didn't believe Cheek's claim of sincerity. It convicted him, and he was sentenced to prison. The conviction was upheld on appeal.
It was therefore error to instruct the jury to disregard evidence of Cheek's understanding that, within the meaning of the tax laws, he was not a person required to file a return or to pay income taxes and that wages are not taxable income, as incredible as such misunderstandings of and beliefs about the law might be. [Emphasis added.]
The Government petitioned for rehearing en banc, arguing for the first time that, even if Murphy’s award is not income, there is no constitutional impediment to taxing it because a tax on the award is not a direct tax and is imposed uniformly. In view of the importance of the issue thus belatedly raised, the panel sua sponte vacated its judgment and reheard the case. . . . In the present opinion, we affirm the judgment of the district court based upon the newly argued ground that Murphy’s award, even if it is not income within the meaning of the Sixteenth Amendment, is within the reach of the congressional power to tax under Article I, Section 8 of the Constitution....This is a dreadful ruling, but one entirely consistent with the law, the Constitution, and how governments typically behave. Indeed, that's the problem! Reading the opinion gave me a sense that the judges were engaged in a purely expedient exercise, without a principle in their heads. It was as though they were determined to find any case that supported their preconceived notion that the state may tax anything. Unfortunately, that is how states have been viewed historically. And the American state is no exception, however much the tax deniers think it is.
Principles of statutory interpretation could show § 61(a) [of the Internal Revenue Code] includes Murphy’s award in her gross income regardless whether it was an “accession to wealth,” as Glenshaw Glass requires. For example, if § 61(a) were amended specifically to include in gross income “$100,000 in addition to all other gross income,” then that additional sum would be a part of gross income under § 61 even though no actual gain was associated with it. In other words, although the “Congress cannot make a thing income which is not so in fact,” ... it can label a thing income and tax it, so long as it acts within its constitutional authority, which includes not only the Sixteenth Amendment but also Article I, Sections 8 and 9. ... (“Congress has the power to impose taxes generally, and if the particular imposition does not run afoul of any constitutional restrictions then the tax is lawful, call it what you will” [Penn Mut. Indem. Co. v. Comm’r, 3d Cir. 1960])... Accordingly, rather than ask whether Murphy’s award was an accession to her wealth, we go to the heart of the matter, which is whether her award is properly included within the definition of gross income in § 61(a), to wit, “all income from whatever source derived.”...
Even if we assume one’s human capital should be treated as personal property, it does not appear that this tax is upon ownership; rather, as the Government points out, Murphy is taxed only after she receives a compensatory award, which makes the tax seem to be laid upon a transaction.... Murphy’s situation seems akin to an involuntary conversion of assets; she was forced to surrender some part of her mental health and reputation in return for monetary damages....
Therefore, even if we were to accept Murphy’s argument that the human capital concept is reflected in the Sixteenth Amendment, a tax upon the involuntary conversion of that capital would still be an excise and not subject to the requirement of apportionment....
[W]e conclude (1) Murphy’s compensatory award was not received on account of personal physical injuries, and therefore is not exempt from taxation pursuant to § 104(a)(2) of the IRC; (2) the award is part of her “gross income,” as defined by § 61 of the IRC; and (3) the tax upon the award is an excise and not a direct tax subject to the apportionment requirement of Article I, Section 9 of the Constitution. The tax is uniform throughout the United States and therefore passes constitutional muster.
Modified January 21The jury deciding Ed and Elaine Brown's federal tax evasion trial found the couple guilty on all counts yesterday.
Elaine Brown, who the prosecutor said owed more than $625,000 in unpaid taxes, was in court to hear the verdict. Her husband, who decided to stop attending his trial last Friday, remained barricaded in the couple's fortified home in Plainfield.Both Browns were found guilty of conspiring to defraud the government, conspiring to conceal large financial transactions and concealing large financial transactions. Elaine Brown was also found guilty of five counts of tax evasion and eight counts of failure to pay employment taxes for the staff of her Lebanon dental practice. Elaine Brown was convicted of seventeen felonies. Ed Brown was convicted of three felonies.
The Browns will be sentenced April 24. According to Assistant U.S. Attorney Bill Morse, the prosecutor, the Browns' sentences will probably fall between three and five years each, and may include the forfeiture of property. The IRS will also begin civil procedures to collect back taxes, interest and penalties, he said.
"I just hope this case sends a message to other people who might consider relying on frivolous tax protester theories," Morse said.
Throughout the trial, the Browns argued that they stopped paying taxes because they believed the law didn't require them to pay. During their opening statements and in cross examination, both Browns said they did not believe the federal government had jurisdiction over them and that they did not believe ordinary labor could be taxed.
"The arguments they put forth have been routinely dismissed," Morse said yesterday. "The government is going to prosecute people who do not pay their taxes."Elaine Brown would not answer questions yesterday. But Michael Avery, a friend who has acted as the Browns' paralegal throughout the trial, said that she was upset about the outcome and planned to appeal. Avery said that Elaine Brown felt the judge had prevented her and her husband from making a full defense by denying nearly 40 of the couple's pretrial motions and rejecting much of their proposed evidence.
"It wasn't a fair fight - that's all," Avery said. "They tied our hands behind our back."
Ed Brown, reached at home, said that he wasn't surprised by the verdict. He, like Avery, said that the judge had prevented the couple from presenting a full defense.
"The whole thing is rigged," he said.
Ed Brown has not been to court since Jan. 11 and said he has no intention of returning. In interviews over the past few days, he has said that he is readying himself for a shootout with federal officials. His hilltop home was built with 8-inch-thick concrete walls and can function without outside power or water, Brown said in an interview this summer. Several supporters have joined Brown at the house and Brown said he expects them to stay for the foreseeable future.
Morse said that he believes a bench warrant has been issued for Brown's arrest and that Brown will be in police custody before his sentencing in April.
But U.S. Marshal Stephen Monier said that his agency is in no rush to arrest Brown and has "no plans of going up there to create a confrontation."
"We're going to try to convince him to come down and submit himself to the jurisdiction of the court," Mounier said. "That's been our goal."
Every now and then we get a glimpse into what government officials really think about our rights to life, liberty, and property. The U.S. Justice Department recently provided such a glimpse in a controversial tax case, Murphy v. IRS.Read the rest of this week's TGIF column at the Foundation for Economic Education website.
How revealing it is! Did you know that if the government abstains from taxing all your income, you should be grateful for this "congressional generosity"?
But the human capital analogy merely supports the notion that an individual might be entitled to damages for nonphysical injures in the first instance. At issue here, however, are the tax consequences of the receipt of those damages, and, in that context, tax concepts must be considered. That taxpayer may have only been returned to the status quo ante does not answer the far different question whether, for tax purposes, she received income subject to tax. . . .Here's where the footnote comes in:
Any determination to exclude such damages from income is not required by the Constitution or driven by tax considerations, but is one of policy based upon value judgments.... Such determinations are the sole province of Congress....
The human capital concept has also been advanced to support the contention, frequently made by adherents of the tax protest movement, that wages are not income within the meaning of the Sixteenth Amendment, on the ground that wages constitute nothing more than the return of personal capital exhausted by one's labor. That argument has been uniformly rejected as frivolous. E.g., United States v. Connor, 898 F.2d 942,943-44 (3d Cir. 1990); Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986. [Emphasis added.]As I've pointed out before, every claim the tax-denial movement makes shrivels to nothingness when examined even halfway closely. We won't get rid of income taxation by legal sleight of hand.
At the outset, we reject the Government’s breathtakingly expansive claim of congressional power under the Sixteenth Amendment -- upon which it founds the more far-reaching arguments it advances here. The Sixteenth Amendment simply does not authorize the Congress to tax as "incomes" every sort of revenue a taxpayer may receive. As the Supreme Court noted long ago, the "Congress cannot make a thing income which is not so in fact."Yeah, the deniers could have a field day with that, assured that most people won't read the full case. But some of us will--and have.
Murphy’s compensatory award [for nonphysical injuries] in particular was not received 'in lieu of' something normally taxed as income; nor is it within the meaning of the term 'incomes' as used in the Sixteenth Amendment. Therefore, insofar as § 104(a)(2) permits the taxation of compensation for a personal injury, which compensation is unrelated to lost wages or earnings, that provision is unconstitutional. [Emphasis added.]Thus implying that taxing compensation that is releated to lost wages, and hence the wages themselves, is indeed constitutional.
The Department of Justice asked for a rehearing en banc (i.e., a hearing before all the members of the Court, rather than before only the panel of three judges who made the original decision).
The original three judges then agreed to rehear the case themselves, and also vacated the August 2006 judgment. The matter has been set for a hearing (before the three judge panel) for April 23, 2007, at which time the appellant (the government) "must raise all issues and arguments in the opening brief."
The August 2006 Murphy decision was mandatory precedent only in the District of Columbia. If significant components of the vacated 2006 decision are reinstated after the April 2007 rehearing, this could have a significant effect on litigants in employment, tort, and defamation suits, and in related areas of law where emotional distress and loss of reputation claims are possible.
This is interesting, but apparently not quite accurate. I've read elsewhere that the original three-judge panel will rehear the case, not the full compliment of the circuit's appellate judges. This seems to be unusual, indicating that the judges may be acknowledging they overlooked something. If the judges reverse themselves, it will be a win for the IRS.
Bear in mind, however, that what is not at issue is whether wages are taxable income. That was never the issue in the case. All that is in dispute is whether compensatory damages that do not replace lost wages are taxable. So a loss for the IRS does nothing to help the tax-denial movement.
