We've all heard something like, income taxes are not constitutional or since we have a voluntary tax system, I choose not to volunteer. Well, so has the IRS and recently the IRS Chief Counsel put out a summary of some of the more common arguments against paying taxes.
You may ask what this has to do with financial planning and you would be asking a fair question. The answer is there are numerous scam artists out there trying to get you to put your money in trusts, 'untaxing' courses or other arrangements to avoid taxes. We want you to be able to fend off these crooks because all of these scams are 1) blatant lies and you will lose your money and 2) highly illegal and can cost you penalties, interest and, possibly, prison time.
With that in mind, let's take a look as some of the more frivolous arguments against paying tax.
We have a voluntary tax system!
Hah! There is nothing voluntary about our tax system, except it allows you to determine your income and compute the tax due, followed immediately by 1) reporting both to the Internal Revenue Service and 2) paying the tax. The notion that we don't have to file tax returns is soundly refuted by section 6011 of the Internal Revenue Code.
By the same token, some say that payment of income taxes is voluntary. Code sections 1, 11 and 6151 are the relevant law in this case. No court has ever refused to recognize the validity of the income tax law.
Further evidence that our system of taxation is not voluntary can be found in the numerous court cases upholding IRS collection actions.
If you receive anything that cites law, articles, IRS publications or other statements claiming you don't have to file due to the voluntary nature of the United States tax system, we humbly but emphatically recommend you throw it away.
Wages, tips and other personal service compensation are not taxable income!
Some people assert that income taxes are due only when there is again involved. If your only 'income' is from payment in cash in exchange for labor, you really haven't gained anything. After all, you gave up something valuable (your time or skills) and received something in return (cash, goods, business interests, etc.). It was an even swap with no gain.
We'll admit that's a nice try, but I.R.C. Section 61 is pretty clear about what constitutes taxable income. You can't get much clearer than saying 'gross income' means all income from whatever source derived, including compensation. Unless there is some specific exception in the law, you have income if you receive payment for personal services.
Only foreign-source income is taxable!
This argument, based on Code Sections 861 and 911, also has no basis in fact. These sections deal with instances where the United States Code is attempting to prevent double taxation when more than one country taxes income. We refer you to the preceding paragraphs for a definition of what constitutes gross income.
Federal Reserve notes are not income!
Based on a misinterpretation of the United States Constitution, those who assert this argument say that only gold or silver constitute legal tender in the United States. In reality, the U.S. Constitution limits only the ability of individual states to declare what constitutes legal tender. It specifically authorizes the U.S. Congress to determine the medium of exchange in the United States and the Congress says Federal Reserve Notes (i.e. cash) are legal tender.
I'm not a citizen, so I'm not a taxpayer!
Some people claim they are not U.S. citizens and expect to get out of income tax liabilities. Their argument is that they are citizens of a particular state, and not the United States.
You've got to admire these folks ingenuity, but the Fourteenth Amendment to the United States Constitution shoots a hole in their argument. According to the Fourteenth Amendment, 'all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein thy reside.'No court has ever sided with those asserting this argument.
I'm not a person!
Some assert only a person is subject to federal taxation. The tax code defines a 'taxpayer'as any person subject to internal revenue tax and further defines a person to be an individual, trust, estate, partnership or corporation. How, or even why, someone would assert this argument defies logic. Since many other laws respecting private property and civil protection apply to persons, this definitely falls under the strange category.
Income taxes equal the taking of property without due process!
The Fifth Amendment of the Constitution provides that no person shall be 'deprived of life, liberty, or property, without due process of law...'Some contend that the IRS's attempts to collect taxes are the taking of property without such due process.
Unfortunately, they are wrong. The U.S. Congress has the express authority to levy taxes under the U.S. Constitution and provide for a means to collect those taxes. Congress has also enacted laws that provide a means of redress if collection actions become too heavy handed. The U.S. Supreme Court has repeatedly upheld IRS collection actions and administrative actions. Did we mention yet that the Supreme Court is the ultimate arbiter of what is 'constitutional'
An 'untaxing'package or trust provides a way of legally and permanently avoiding obligations to file income tax returns and pay taxes.
Let's review a little of what we said before. Everyone is a person and therefore subject to the laws of the United States (assuming you are a resident). In general, all persons are taxpayers and, therefore, required to pay taxes.
While we realize there are instances where some people are nonresident aliens with non-taxable income or are otherwise exempt due to a lack of taxable income, how can anyone claim there is a way to avoid payment of taxes if the law specifically precludes a person from opting out of the system?
The argument defies logic.
Your link to common sense.
While we've poked fun at some of these 'frivolous' arguments, attempts to avoid taxes are really no laughing matter. Unfortunately, many intelligent people fall for these false arguments against taxation because, taken by themselves, they make complete sense. Con artists never tell you the whole truth, only what it takes to get your money.
There are many other "frivolous" arguments the IRS Chief Counsel details in a good publication on this issue and it's available at the IRS website. Simply go to www.irs.gov/ind_info/friv_tax.pdf for your link to common sense.
If you're like the rest of us, one of the things you don't particularly like to do is pay income tax. Given that, it's natural to want to believe arguments that free you from income tax liability. Unfortunately, if something sounds too good to be true, it is. If you ever see an argument against paying taxes that makes sense to you, do yourself a favor and ask our opinion. Our prime motivation is helping you stay out of hot water while minimizing your tax burdens and maximizing your wealth. It's what we do best.
Have a great September!